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Cost of Inflation in Inventory Theoretical Models

Fernando Alvarez, Francesco Lippi and Roberto Robatto

Review of Economic Dynamics, 2019, vol. 32, 206-226

Abstract: We show that the area under the long-run demand curve for money approximates the welfare cost of inflation for a large class of inventory theoretical models of money demand. The class of inventory models considered has a general stochastic structure of the net cash expenditures, as well as of the fixed/variable cost of withdrawing and depositing money. Thus, our framework nests a large number of models that have been studied in the literature. The results complement those obtained by Lucas (2000) for money-in-the-utility function and for shopping-time models. (Copyright: Elsevier)

Keywords: Money demand; Welfare cost of inflation; Inventory theoretical models (search for similar items in EconPapers)
JEL-codes: E41 E52 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1016/j.red.2018.11.001

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