 On the welfare cost of inflationRobert M. Adams
No 94-07, Working Papers in Applied Economic Theory from Federal Reserve Bank of San Francisco Abstract: Estimates are provided for the social cost of inflation in the U.S. economy. The estimated cost, expressed as a fraction of income, is proportional to the square root of the nominal interest rate. This approximation assigns much higher costs to low rates of inflation than does the familiar welfare triangle formula. ; These estimates are rationalized using Sidrauski's model, in which real balances yield utility, and also using the McCallum-Goodfriend model, in which real balances and time are combined via a transactions technology to support a given spending flow. The latter formulation is related to the Baumol and Miller-Orr inventory-theoretic models of money demand. Second-best modifications to take into account fiscal complications are also considered, but turn out to be quantitatively minor. Keywords: Inflation (Finance); Monetary policy (search for similar items in EconPapers) Published in Conference on Monetary Policy in a Low Inflation Regime There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:fip:fedfap:94-07 Ordering information: This working paper can be ordered from Access Statistics for this paper More papers in Working Papers in Applied Economic Theory from Federal Reserve Bank of San Francisco Contact information at EDIRC. |
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