Bailey's Measure of the Welfare Costs of Inflation as a General-Equilibrium Measure

Rubens Cysne

Journal of Money, Credit and Banking, 2009, vol. 41, issue 2-3, 451-459

Abstract: Lucas (2000) has shown that Bailey's formula for the welfare costs of inflation can be regarded as an approximation to the general-equilibrium measures that emerge from the Sidrauski and the shopping-time models. In this paper we show that Bailey's measure can be exactly obtained in the Sidrauski general-equilibrium framework under the assumption of quasilinear preferences. The result, based on whether or not wealth effects are incorporated into the analysis, is also helpful in clarifying why Lucas' measure derived from the Sidrauski model turns out to be an upper bound to Bailey's. Two examples are used to illustrate the main conclusions. Copyright (c) 2009 The Ohio State University.

Date: 2009
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Working Paper: Bailey's measure of the welfare costs of inflation as a general-equilibrium measure (2017)
Journal Article: Bailey's Measure of the Welfare Costs of Inflation as a General‐Equilibrium Measure (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:mcb:jmoncb:v:41:y:2009:i:2-3:p:451-459

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