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How Inside Money Makes Inflation Costly For Most (but Gainful For Some)

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  • William Coleman

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Abstract

It is argued that inflation creates private incentives for (socially costly) inside money to supplant (socially costless) outside money. Consequently, the familiar 'shoe leather cost' of inflation, that operates through a reduced demand for money under inflation, is supplemented by a separate social cost of inflation that operates through an increased supply of (inside) money under inflation. It is further argued that allowance of the costliness of an inflation-induced expansion of inside money changes the character of the distribution of the costs of inflation. Certain suppliers of inside money may experience a net gain from an inflation. The upshot is that inflation is no longer necessarily a 'common enemy', but may be welcomed by some economic interests.

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Bibliographic Info

Paper provided by Australian National University, College of Business and Economics, School of Economics in its series ANU Working Papers in Economics and Econometrics with number 2007-486.

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Length: 22 pages
Date of creation: Dec 2007
Date of revision:
Handle: RePEc:acb:cbeeco:2007-486

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  1. Hicks, John, 1989. "A Market Theory of Money," OUP Catalogue, Oxford University Press, number 9780198287247.
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