The welfare cost of inflation: a critique of Bailey and Lucas
AbstractEstimating the welfare gains from ending inflation requires taking a stand on the shape of the money demand function. A form of the money demand function that seems to describe U.S. experience - known in technical jargon as the double log form - seems to work well in countries and times where inflation was moderate. In this article, Alvin Marty argues that the double log form would not likely work well in extreme cases, where policy was set to achieve Milton Friedman's optimal money stock, or at the other extreme, hyperinflation. The author concludes that this simple functional form should not be used to calculate the welfare gains associated with implementing the optimal policy.
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Bibliographic InfoArticle provided by Federal Reserve Bank of St. Louis in its journal Review.
Volume (Year): (1999)
Issue (Month): Jan ()
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- King, Robert G. & Wolman, Alexander L., 2013.
"Inflation Targeting in a St. Louis Model of the 21st Century,"
Federal Reserve Bank of St. Louis, issue Nov, pages 543-574.
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- Robert G. King & Alexander L. Wolman, 1996. "Inflation targeting in a St. Louis model of the 21st century," Review, Federal Reserve Bank of St. Louis, issue May, pages 83-107.
- Robert G. King & Alexander L. Wolman, 1996. "Inflation Targeting in a St. Louis Model of the 21st Century," NBER Working Papers 5507, National Bureau of Economic Research, Inc.
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