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Shoe-Leather Costs Reconsidered

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Author Info
Chadha, Jagjit S
Haldane, Andrew G
Janssen, Norbert G J

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Abstract

R. E. Lucas (1995) has recently suggested that the 'shoe-leather' costs of inflation may amount to as much as 1 percent of GNP in the United States when moving to the Friedman optimum. The authors assess his thesis using empirical evidence for the United Kingdom over the period 1870-1994. They find support for Lucas's proposition--that interest rates should be specified in logs--as a description of money demand dynamics but not as a steady-state characterization. Although Lucas's estimates can be corroborated, a semilog interest rate specification implies smaller, though still tangible, welfare gain estimates: for example, 0.22 percent of GNP in perpetuity when moving from 6 percent to 2 percent nominal interest rates.

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Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 108 (1998)
Issue (Month): 447 (March)
Pages: 363-82
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Handle: RePEc:ecj:econjl:v:108:y:1998:i:447:p:363-82

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Francis Breedon & Paul Fisher, . "M0: Causes and Consequences," Bank of England working papers 20, Bank of England.
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  2. Fischer, Stanley, 1981. "Towards an understanding of the costs of inflation: II," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 15(1), pages 5-41, January. [Downloadable!] (restricted)
  3. Ballard, Charles L & Shoven, John B & Whalley, John, 1985. "General Equilibrium Computations of the Marginal Welfare Costs of Taxes in the United States," American Economic Review, American Economic Association, vol. 75(1), pages 128-38, March. [Downloadable!] (restricted)
  4. Chadha, Jagjit S & Haldane, Andrew G & Janssen, Norbert G J, 1998. "Shoe-Leather Costs Reconsidered," Economic Journal, Royal Economic Society, vol. 108(447), pages 363-82, March. [Downloadable!] (restricted)
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  5. Robert J. Shiller, 1996. "Why Do People Dislike Inflation?," Cowles Foundation Discussion Papers 1115, Cowles Foundation, Yale University. [Downloadable!]
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  6. Tower, Edward, 1971. "More on the Welfare Cost of Inflationary Finance," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 3(4), pages 850-60, November. [Downloadable!] (restricted)
  7. C.W.J. Granger & Jeff Hallman, 1988. "The algebra of I (1)," Finance and Economics Discussion Series 45, Board of Governors of the Federal Reserve System (U.S.).
  8. Dotsey, Michael & Ireland, Peter, 1996. "The welfare cost of inflation in general equilibrium," Journal of Monetary Economics, Elsevier, vol. 37(1), pages 29-47, February. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Björn Fischer & Petra Köhler & Franz Seitz, 2004. "The demand for euro area currencies," Working Paper Series 330, European Central Bank. [Downloadable!]
  2. Willem H. Buiter & Nikolaos Panigirtzoglou, 1999. "Liquidity Traps: How to Avoid Them and How to Escape Them," NBER Working Papers 7245, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Alessandro Calza & Andrea Zaghini, 2008. "Nonlinearities in the dynamics of the euro area demand for M1," Temi di discussione (Economic working papers) 690, Bank of Italy, Economic Research Department. [Downloadable!]
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  4. Hasan Bakhshi & Ben Martin & Tony Yates, . "How uncertain are the welfare costs of inflation?," Bank of England working papers 152, Bank of England. [Downloadable!]
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  5. Alessandro Calza & Andrea Zaghini, 2006. "Non-linear dynamics in the euro area demand for M1," Working Paper Series 592, European Central Bank. [Downloadable!]
  6. Dumitru, Ionut, 2002. "Money Demand in Romania," MPRA Paper 10629, University Library of Munich, Germany. [Downloadable!]
  7. Jag Chadha & Andrew Haldane & Norbert Janssen, . "Shoe-leather costs reconsidered," Bank of England working papers 86, Bank of England. [Downloadable!]
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  8. Norbert Janssen, . "The demand for M0 in the United Kingdom reconsidered: some specification issues," Bank of England working papers 83, Bank of England. [Downloadable!]
  9. Diego Rodriguez Palenzuela & Gonzalo Camba-Mendez & Juan Angel Garcia, 2003. "Relevant economic issues concerning the optimal rate of inflation," Working Paper Series 278, European Central Bank. [Downloadable!]
  10. Livio Stracca, 2001. "Does liquidity matter? Properties of the synthetic divisia monetary aggregate in the Euro area," Working Paper Series 079, European Central Bank. [Downloadable!]
  11. Alexander L. Wolman, 1997. "Zero inflation and the Friedman rule: a welfare comparison," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 1-21. [Downloadable!]
  12. Miguel Casares, 2002. "Price setting and the steady-state effects of inflation," Working Paper Series 140, European Central Bank. [Downloadable!]
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