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Inflation and Welfare: Comment on Robert Lucas

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Author Info
Sinn, Hans-Werner

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Abstract

The paper argues that Lucas overestimates the Friedman-Bailey type of welfare cost of inflation and neglects other important welfare effects. With an alternative interpretation of the non-observability of low interest rates than the one Lucas gave and the introduction of taxes that reduce the opportunity cost of money holding, the welfare cost shrinks to one third of Lucas' estimate. The neglected welfare effects of inflation include an adverse Baumol-Tobin effect on growth and international capital movements, historical cost accounting for tax purposes, uncertainty about the price level and the relationship between inflation, relative prices and structural change.

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Publisher Info
Paper provided by CESifo GmbH in its series CESifo Working Paper Series with number CESifo Working Paper No. 179.

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Date of creation: 1999
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Handle: RePEc:ces:ceswps:_179

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Related research
Keywords: inflation cost of inflation

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Find related papers by JEL classification:
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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  28. Jay Pil Choi, 1998. "Tying and Innovation: A Dynamic Analysis of Tying Arrangements," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
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  29. Ahsan, Syed M. & Tsigaris, Peter, 1998. "The Design of a Consumption Tax under Capital Risk," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH.
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  31. Honkapohja, Seppo & Evans, George W., 1996. "Convergence of Learning Algorithms without a Projection Facility," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH.
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  32. Jay Pil Choi & Marcel Thum, 1998. "The Economics of Repeated Extortion," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
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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. Sinn, Hans-Werner, 1999. "Inflation and Welfare: Comment on Robert Lucas," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
    Other versions:
  2. Tsyplakov Alexander, 2001. "Does Lower Inflation Imply Lower Price Uncertainty?," EERC Working Paper Series 2k-06e, EERC Research Network, Russia and CIS. [Downloadable!]
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