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Zero Inflation: Transition Costs And Shoe Leather Benefits

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  • CHARLES T. Carlstrom
  • WILLIAM T. Gavin

Abstract

The idea that the monetary authority cannot achieve price stability except at the cost of a recession is the most common and convincing argument against price stability. This paper presents calculations showing that the resource costs of a recession that might result from eliminating a 4 percent inflation are approximately equal to the "shoe leather" costs incurred when inflation is stable at 4 percent. Copyright 1993 Western Economic Association International.

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Bibliographic Info

Article provided by Western Economic Association International in its journal Contemporary Economic Policy.

Volume (Year): 11 (1993)
Issue (Month): 1 (01)
Pages: 9-17

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Handle: RePEc:bla:coecpo:v:11:y:1993:i:1:p:9-17

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References

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  1. Fischer, Stanley, 1981. "Towards an understanding of the costs of inflation: II," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 15(1), pages 5-41, January.
  2. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis And The European Unemployment Problem," NBER Chapters, in: NBER Macroeconomics Annual 1986, Volume 1, pages 15-90 National Bureau of Economic Research, Inc.
  3. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, Elsevier, vol. 12(1), pages 101-121.
  4. Cooley, T.F. & Hansen, G.D., 1991. "The Welfare Costs of Moderate Inflations," Papers, Rochester, Business - General 90-04, Rochester, Business - General.
  5. Kydland, Finn E, 1991. "Inflation, Personal Taxes, and Real Output: A Dynamic Analysis," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 23(3), pages 575-79, August.
  6. David Altig & Charles T. Carlstrom, 1991. "Inflation, personal taxes, and real output: a dynamic analysis," Working Paper 9102, Federal Reserve Bank of Cleveland.
  7. Dennis Hoffman & Robert H. Rasche, 1989. "Long-run Income and Interest Elasticities of Money Demand in the United States," NBER Working Papers 2949, National Bureau of Economic Research, Inc.
  8. Gary Hansen, 2010. "Indivisible Labor and the Business Cycle," Levine's Working Paper Archive 233, David K. Levine.
  9. Barro, Robert J. & Fischer, Stanley, 1976. "Recent developments in monetary theory," Journal of Monetary Economics, Elsevier, Elsevier, vol. 2(2), pages 133-167, April.
  10. Marty, Alvin L., 1976. "A note on the welfare cost of money creation," Journal of Monetary Economics, Elsevier, Elsevier, vol. 2(1), pages 121-124, January.
  11. S. Rao Aiyagari, 1990. "Deflating the case for zero inflation," Quarterly Review, Federal Reserve Bank of Minneapolis, Federal Reserve Bank of Minneapolis, issue Sum, pages 2-11.
  12. Benabou, Roland, 1991. "The Welfare Costs of Moderate Inflations: Comment," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 23(3), pages 504-13, August.
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Cited by:
  1. Dotsey, Michael & Ireland, Peter, 1996. "The welfare cost of inflation in general equilibrium," Journal of Monetary Economics, Elsevier, Elsevier, vol. 37(1), pages 29-47, February.
  2. David Altig, 1992. "An ebbing tide lowers all boats: monetary policy, inflation, and social justice," Economic Review, Federal Reserve Bank of Cleveland, Federal Reserve Bank of Cleveland, issue Q II, pages 14-22.
  3. Ragan, Christopher, 1998. "On the Believable Benefits of Low Inflation," Working Papers, Bank of Canada 98-15, Bank of Canada.
  4. Michael R. Pakko, 1998. "Shoe-leather costs of inflation and policy credibility," Review, Federal Reserve Bank of St. Louis, Federal Reserve Bank of St. Louis, issue Nov, pages 37-50.
  5. O'Reilly, B., 1998. "The Benefits of Low Inflation: Taking Shock "A nickel ain't worth a dime any more" [Yogi Berra]," Technical Reports, Bank of Canada 83, Bank of Canada.

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