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Welfare cost of inflation in a stochastic balanced growth model

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  • Dibooglu, Sel
  • Kenc, Turalay

Abstract

There is a large and growing literature on the welfare cost of inflation. However, work in this area tend to find moderate estimates of welfare gains. In this paper we reexamine welfare costs of inflation within a stochastic general equilibrium balanced growth model paying a particular attention to recursive utility, portfolio balance effects, and monetary volatility and monetary policy uncertainty. Our numerical analysis shows that a monetary policy that brings down inflation to the optimum level can have substantial welfare effects. Portfolio adjustment effects seem to be the dominant factor behind the welfare gains.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 26 (2009)
Issue (Month): 3 (May)
Pages: 650-658

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Handle: RePEc:eee:ecmode:v:26:y:2009:i:3:p:650-658

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Web page: http://www.elsevier.com/locate/inca/30411

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Keywords: Inflation Monetary policy Stochastic growth models;

References

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Cited by:
  1. Echevarría, Cruz A., 2012. "Income tax progressivity, physical capital, aggregate uncertainty and long-run growth in an OLG economy," Journal of Macroeconomics, Elsevier, vol. 34(4), pages 955-974.
  2. Lynne Evans & Anamaria Nicolae, 2010. "Imperfectly-Credible Disinflation of Small Inflations," Working Papers 2010_01, Durham University Business School.

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