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Shoe-leather costs reconsidered

Jagjit Chadha (), Andrew Haldane and Norbert Janssen

Bank of England working papers from Bank of England

Abstract: It has recently been suggested by Robert Lucas that `shoe-leather' costs of inflation may amount to as much as 1% of GNP in the United States. This paper assesses the UK evidence for the period 1970-1994. Similar estimates to those of Lucas are found using his original specification, but a preferred functional form using a semi-log interest elasticity of demand for money reveals a 0.22 % of GNP gain in perpetuity following a sustained fall in nominal interest rates from 6% to 2%.

Date: 1998-10
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