Welfare costs of inflation and the circulation of US currency abroad

Alessandro Calza () and Andrea Zaghini
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Alessandro Calza: European Central Bank

No 812, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: Empirical studies of the shoe-leather costs of inflation are typically computed using M1 as a measure of money. Yet, official data on M1 includes all currency issued, regardless of the country of residence of the holder. Using adjusted monetary data, we show that the failure to control for currency held by non residents may lead to significantly overestimating the welfare costs for the domestic economy. In particular, our estimates of shoe-leather costs are minimized for a positive but moderate value of the inflation rate, thereby justifying a deviation from the Friedman rule in favour of the Fed�s current policy.

Keywords: Welfare cost of inflation; flow of funds data; US currency abroad (search for similar items in EconPapers)
JEL-codes: E31 E41 E52 (search for similar items in EconPapers)
Date: 2011-06
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Welfare Costs of Inflation and the Circulation of U.S. Currency Abroad (2011)
Working Paper: Welfare costs of inflation and the circulation of US currency abroad (2011)
Working Paper: Welfare costs of inflation and the circulation of U. S. currency abroad (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_812_11

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