Measuring the welfare costs of inflation in a life-cycle model

Paul Gomme

Journal of Economic Dynamics and Control, 2015, vol. 57, issue C, 132-144

Abstract: In a neoclassical growth model with life-cycle households in which money is held to satisfy a cash-in-advance constraint, the optimal steady state inflation rate is absurdly high: in excess of 20%. Lump-sum, age-independent money injections twist and flatten the lifetime profile of utility, making this profile look more like the one that would be chosen by a planner. The cost of monetary finance of lump-sum payments is the distortion introduced to the labor-leisure choice.

Keywords: Monetary policy; Inflation; Welfare costs; Life-cycle model (search for similar items in EconPapers)
JEL-codes: D58 D91 E31 E32 E52 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Measuring the Welfare Costs of Inflation in a Life-cycle Model (2012)
Working Paper: Measuring the Welfare Costs of Inflation in a Life-cycle Model (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:57:y:2015:i:c:p:132-144

DOI: 10.1016/j.jedc.2015.06.002

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