Long-Run Analysis in Alternative Optimizing Monetary Models

Miguel Casares

No 107, Documentos de Trabajo - Lan Gaiak Departamento de Economía - Universidad Pública de Navarra from Departamento de Economía - Universidad Pública de Navarra

Abstract: This paper explores the transmission channel from monetary variables to real variables in the steady-state equilibria of various neoclassical optimizing models with money. The existence of superneutrality is rejected for the four models at hand: time-cost transactions approach, output-cost transactions approach, money in the utility function model, and cash-in-advance model. However, the real effects of high rates of inflation are not large: output, consumption, and investment slightly fall with higher inflation rates. In addition, the welfare cost of inflation is calculated for annual rates of inflation ranging from 0% to 50%. Three of the models (all but the cash-in-advance model) agree on the following result: a 10% rate of inflation creates a permanent welfare cost equal to 0.3% of GDP per year.

Keywords: money; superneutrality; welfare cost of inflation (search for similar items in EconPapers)
JEL-codes: E13 E41 E58 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2001
New Economics Papers: this item is included in nep-mon
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