Inflation, Welfare, and the Time-Costs of Transacting

David Love and Jean-Francois Wen

Canadian Journal of Economics, 1999, vol. 32, issue 1, 171-194

Abstract: The costs of inflation are assessed using an endogenous growth macroeconomic model in which money reduces the time-costs of transacting. Inflation reduces growth in the model, which supports recent empirical evidence. Although simulations show time-costs to be small, inflation raises these costs and affects consumption, employment, and growth margins, implying greater welfare losses than generally found in the literature. The authors estimate welfare gains of 2 percent of GNP for reductions in inflation rates from 5 percent to zero when seignorage revenues are replaced with distortional taxes. Optimal inflation rates are negative.

JEL-codes: D6 E31 (search for similar items in EconPapers)
Date: 1999
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Citations: View citations in EconPapers (6)

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Working Paper: Inflation Welfare, and the Time-Costs of Transacting (1995)
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