Welfare Cost Of Inflation In A General Equilibrium Model With Currency And Interest-Bearing Deposits
AbstractWe generalize a money-in-the-utility function model to include interest-bearing deposits and use the model to estimate the welfare cost of inflation. In the model, the user cost of deposits is invariant to inflation in steady state. Currency and deposits are assumed to be weakly separable and the model is calibrated using index number methods. We find that the welfare cost of inflation is substantially lower in the model with interest-bearing deposits than in models where all monetary assets are assumed to be non-interest bearing. We also show that higher inflation can raise or lower the rate of convergence to steady state depending on the coefficient of relative risk aversion, but the effect is weak. We provide evidence for OECD countries suggesting that there could be a positive effect of inflation on user costs, which would lead to higher welfare cost estimates.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Cambridge University Press in its journal Macroeconomic Dynamics.
Volume (Year): 8 (2004)
Issue (Month): 04 (September)
Contact details of provider:
Postal: The Edinburgh Building, Shaftesbury Road, Cambridge CB2 2RU UK
Fax: +44 (0)1223 325150
Web page: http://journals.cambridge.org/jid_MDYProvider-Email:email@example.com
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Peter N. Ireland, 2011.
"The Macroeconomic Effects on Interest on Reserves,"
Boston College Working Papers in Economics
772, Boston College Department of Economics.
- Cysne, Rubens Penha & Turchick, David, 2010.
"Welfare costs of inflation when interest-bearing deposits are disregarded: A calculation of the bias,"
Economics Working Papers (Ensaios Economicos da EPGE)
700, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
- Cysne, Rubens Penha & Turchick, David, 2010. "Welfare costs of inflation when interest-bearing deposits are disregarded: A calculation of the bias," Journal of Economic Dynamics and Control, Elsevier, vol. 34(6), pages 1015-1030, June.
- Ryu-ichiro Murota & Yoshiyasu Ono, 2009.
"Zero Nominal Interest Rates, Unemployment, Excess Reserves and Deflation in a Liquidity Trap,"
ISER Discussion Paper
0748, Institute of Social and Economic Research, Osaka University.
- Ryu‐ichiro Murota & Yoshiyasu Ono, 2012. "Zero Nominal Interest Rates, Unemployment, Excess Reserves And Deflation In A Liquidity Trap," Metroeconomica, Wiley Blackwell, vol. 63(2), pages 335-357, 05.
- Michael T. Belongia & Peter N. Ireland, 2012.
"The Barnett Critique After Three Decades: A New Keynesian Analysis,"
NBER Working Papers
17885, National Bureau of Economic Research, Inc.
- Michael T. Belongia & Peter N. Ireland, 2010. "The Barnett Critique After Three Decades: A New Keynesian Analysis," Boston College Working Papers in Economics 736, Boston College Department of Economics.
- Manjong Lee & Sung Guan Yun, 2014. "Composition of Portfolio and Cost of Inflation," Discussion Paper Series 1403, Institute of Economic Research, Korea University.
- Rubens Penha Cysne & David Turchick, 2010.
"Money Supply and Capital Accumulation on the Transition Path Revisited,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 42(6), pages 1173-1184, 09.
- Cysne, Rubens Penha & Turchick, David, 2010. "Money supply and capital accumulation on the transition path revisited," Economics Working Papers (Ensaios Economicos da EPGE) 702, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
- Cysne, Rubens Penha, 2008. "A note on "Inflation and Welfare"," Journal of Banking & Finance, Elsevier, vol. 32(9), pages 1984-1987, September.
- Paulo Barelli & Samuel Abreu Pessôa, 2009. "On the general equilibrium costs of perfectly anticipated inflation," Annals of Finance, Springer, vol. 5(2), pages 243-262, March.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Keith Waters).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.