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Inflation Welfare, and the Time-Costs of Transacting

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Author Info

  • Love, D.R.F.
  • Wen, J.F.

Abstract

The costs of inflation are assessed using an endogenous growth macroeconomic model in which money reduces the time-costs of transacting. Inflation reduces growth in the model, which supports recent empirical evidence. Although simulations show time-costs to be small, inflation raises these costs and affects consumption, employment, and growth margins, implying greater welfare losses than generally found in the literature. The authors estimate welfare gains of 2 percent of GNP for reductions in inflation rates from 5 percent to zero when seignorage revenues are replaced with distortional taxes. Optimal inflation rates are negative.

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Bibliographic Info

Paper provided by Brock University, Department of Economics in its series Working Papers with number 1995-05.

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Length: 48 pages
Date of creation: 1995
Date of revision:
Handle: RePEc:brk:wpaper:1995-05

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Keywords: INFLATION; ECONOMIC MODELS; CONSUMPTION;

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Cited by:
  1. Max Gillman & Michal Kejak, 2005. "Inflation and Balanced-Path Growth with Alternative Payment Mechanisms," Economic Journal, Royal Economic Society, vol. 115(500), pages 247-270, 01.
  2. Gillman, M. & Kejak, M. & Valentinyi, A., 1999. "Inflation, growth and credit services," Discussion Paper Series In Economics And Econometrics 9913, Economics Division, School of Social Sciences, University of Southampton.
  3. Gillman, Max & Otto, Glenn, 2003. "Money demand in a banking time economy," HWWA Discussion Papers 254, Hamburg Institute of International Economics (HWWA).

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