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On the Markov Switching Welfare Cost of Inflation

Author

Listed:
  • Apostolos Serletis

    (University of Calgary)

  • Wei Dai

    (University of Calgary)

Abstract

This paper uses the Markov switching approach to account for instabilities in the long- run money demand function and compute the welfare cost of inflation in the United States. In doing so, it circumvents the problem of data-mining of some earlier seminal contributions on these issues, allowing for complicated nonlinear dynamics and sudden changes in the parameters of the money demand function. Moreover, it extends the sample period, and investigates the robustness of results to alternative money demand specifications, monetary aggregation procedures, and assumptions regarding dynamics aspects of the money demand specification.

Suggested Citation

  • Apostolos Serletis & Wei Dai, "undated". "On the Markov Switching Welfare Cost of Inflation," Working Papers 2019-12, Department of Economics, University of Calgary, revised 30 Aug 2019.
    • Handle: RePEc:clg:wpaper:2019-12
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    File URL: https://econ.ucalgary.ca/sites/econ.ucalgary.ca.manageprofile/files/unitis/publications/1-9695908/Serletis_and_Dai_Aug_2019.pdf
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    References listed on IDEAS

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    Cited by:

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    3. Serletis, Apostolos & Xu, Libo, 2023. "Consumer preferences, the demand for Divisia money, and the welfare costs of inflation," Journal of Macroeconomics, Elsevier, vol. 75(C).
    4. Antonio N. Bojanic, 2021. "A Markov-Switching Model of Inflation in Bolivia," Economies, MDPI, vol. 9(1), pages 1-18, March.

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    More about this item

    Keywords

    Welfare cost of inflation; Markov regime switching; Divisia money;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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