Economics at your fingertips  

Deposit spreads and the welfare cost of inflation

Pablo Kurlat

Journal of Monetary Economics, 2019, vol. 106, issue C, 78-93

Abstract: High nominal interest rates are associated with high deposit spreads, which is consistent with a model where banks have monopoly power and currency and deposits are substitutes. Therefore, higher interest rates raise the implicit price of banking services, increase bank profits and attract entry into the banking sector. Taking these effects into account, a one percentage point increase in inflation has a welfare cost of 0.083% of GDP, 6.7 times higher than traditional estimates.

Keywords: Inflation; Bank deposits; Deposit spreads; Money demand (search for similar items in EconPapers)
JEL-codes: E31 E41 G21 D43 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

DOI: 10.1016/j.jmoneco.2019.07.006

Access Statistics for this article

Journal of Monetary Economics is currently edited by R. G. King and C. I. Plosser

More articles in Journal of Monetary Economics from Elsevier
Bibliographic data for series maintained by Haili He ().

Page updated 2020-06-20
Handle: RePEc:eee:moneco:v:106:y:2019:i:c:p:78-93