Welfare cost of inflation in a stochastic balanced growth model

Selahattin Dibooglu and Turalay Kenc

Economic Modelling, 2009, vol. 26, issue 3, 650-658

Abstract: There is a large and growing literature on the welfare cost of inflation. However, work in this area tend to find moderate estimates of welfare gains. In this paper we reexamine welfare costs of inflation within a stochastic general equilibrium balanced growth model paying a particular attention to recursive utility, portfolio balance effects, and monetary volatility and monetary policy uncertainty. Our numerical analysis shows that a monetary policy that brings down inflation to the optimum level can have substantial welfare effects. Portfolio adjustment effects seem to be the dominant factor behind the welfare gains.

Keywords: Inflation; Monetary; policy; Stochastic; growth; models (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (3)

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