Welfare Costs of Inflation, Seigniorage, and Financial Innovation

Jose De Gregorio

IMF Staff Papers, 1991, vol. 38, issue 4, 675-704

Abstract: The welfare effects of mitigating the costs of inflation are examined. In a model where money reduces transactions costs, a fall in inflation costs is equivalent to financial innovation. This can be caused by paying interest on deposits, indexing money, or "dollarizing." Results indicate that financial innovation raises welfare in low-inflation economies while reducing it in high-inflation economies because of the offsetting indirect effect of higher inflation to finance the budget.

JEL-codes: E50 E60 (search for similar items in EconPapers)
Date: 1991
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Working Paper: Welfare Costs of Inflation, Seigniorage, and Financial innovation (1991)
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