Deposit Spreads and the Welfare Cost of Inflation

Pablo Kurlat ()

No 25385, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Since bank deposits and currency are substitutes and banks have monopoly power, higher nominal interest rates lead to higher deposit spreads. This raises the cost of transaction services, increases bank profits and attracts entry into the banking sector. Taking these effects into account, a one percentage point increase in inflation has a welfare cost of 0.086% of GDP, 6.9 times higher than traditional estimates.

JEL-codes: D43 E31 E41 G21 (search for similar items in EconPapers)
Date: 2018-12
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Note: EFG ME
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Citations: View citations in EconPapers (5)

Published as Pablo Kurlat, 2019. "Deposit Spreads and the Welfare Cost of Inflation," Journal of Monetary Economics, .

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Journal Article: Deposit spreads and the welfare cost of inflation (2019)
Working Paper: Deposit Spreads and the Welfare Cost of Inflation (2019)
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