An intra-household approach to the welfare costs of inflation

Rubens Cysne

No 521, FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) from EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil)

Abstract: The literature on the welfare costs of in‡ation universally assumes that the many-person household can be treated as a single economic agent. This paper explores what the heterogeneity of the agents in a household might imply for such welfare analyses. First, we show that allowing for a single-unity or for a multi-unity transacting technology impacts the money demand function and, therefore, the welfare costs of in‡ation. Second, we derive su¢cient conditions that make the welfare assessments which depart directly from the knowledge of the money demand function (as in Lucas (2000)) robust under this alternative setting. Third, we compare our general-equilibrium measure with Bailey’s (1956) partial-equilibrium one.

Date: 2004-01-01
New Economics Papers: this item is included in nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:fgv:epgewp:521

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