Advanced Search
MyIDEAS: Login to save this paper or follow this series

Liquidity Effects and Welfare Costs of Inflation in an EndogenousGrowth Model

Contents:

Author Info

  • C.K. Folkertsma
Registered author(s):

    Abstract

    The paper has two subjects. The first subject is the development of a monetary general equilibrium model with en- dogenous growth. By combining the two-sector endogenous growth model and the limited participation approach, the model is able to explain the empirically observed liquidity effect of an expansionary monetary policy. The second subject is the effect of inflation on growth and economic welfare. It is shown that the traditional approach to measure the welfare costs of inflation may be misleading: It ignores the costs or benefits of the transition to the new steady state. This omission may bias estimates of the optimal degree and of the total benefits of disinflation. It is also argued that, once the transition is taken into account, the welfare gains of lowering inflation depend on the monetary policy rule and the fiscal response to disinflation. The two themes of the paper are related. Given that the welfare costs of inflation depend on the transitional dynamics, then simulating disinflation processes requires models with sensible short run properties.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.dnb.nl/binaries/sr054_tcm46-146832.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by Netherlands Central Bank in its series DNB Staff Reports (discontinued) with number 54.

    as in new window
    Length: 40 pages
    Date of creation: 2000
    Date of revision:
    Handle: RePEc:dnb:staffs:54

    Contact details of provider:
    Postal: Postbus 98, 1000 AB Amsterdam
    Web page: http://www.dnb.nl/en/
    More information through EDIRC

    Related research

    Keywords: Monetary general equilibrium model; endogenous growth; welfare costs of inflation; monetary trans- mission; liquidity effects;

    Find related papers by JEL classification:

    References

    References listed on IDEAS
    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.:
    as in new window
    1. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    2. Ladron-de-Guevara, Antonio & Ortigueira, Salvador & Santos, Manuel S., 1997. "Equilibrium dynamics in two-sector models of endogenous growth," Journal of Economic Dynamics and Control, Elsevier, vol. 21(1), pages 115-143, January.
    3. Lawrence J. Christiano & Martin Eichenbaum, 1992. "Liquidity effects and the monetary transmission mechanism," Staff Report 150, Federal Reserve Bank of Minneapolis.
    4. David Altig & Charles T. Carlstrom & Kevin J. Lansing, 1995. "Computable general-equilibrium models and monetary policy advice," Working Paper 9503, Federal Reserve Bank of Cleveland.
    5. Paul Gomme, 1991. "Money and growth revisited," Discussion Paper / Institute for Empirical Macroeconomics 55, Federal Reserve Bank of Minneapolis.
    6. Alexander L. Wolman, 1998. "Staggered price setting and the zero bound on nominal interest rates," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 1-24.
    7. David Reifschneider & John C. Williams, 1999. "Three lessons for monetary policy in a low inflation era," Finance and Economics Discussion Series 1999-44, Board of Governors of the Federal Reserve System (U.S.).
    8. Cooley, Thomas F & Hansen, Gary D, 1991. "The Welfare Costs of Moderate Inflations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(3), pages 483-503, August.
    9. Wu, Yangru & Zhang, Junxi, 1998. "Endogenous growth and the welfare costs of inflation: a reconsideration," Journal of Economic Dynamics and Control, Elsevier, vol. 22(3), pages 465-482, March.
    10. Michael Dotsey & Peter Ireland, 1994. "The welfare cost of inflation in general equilibrium," Working Paper 94-04, Federal Reserve Bank of Richmond.
    11. Martin Feldstein, 1996. "The Costs and Benefits of Going from Low Inflation to Price Stability," NBER Working Papers 5469, National Bureau of Economic Research, Inc.
    12. Carlstrom, Charles T. & Fuerst, Timothy S., 1995. "Interest rate rules vs. money growth rules a welfare comparison in a cash-in-advance economy," Journal of Monetary Economics, Elsevier, vol. 36(2), pages 247-267, November.
    13. Summers, Lawrence, 1991. "How Should Long-Term Monetary Policy Be Determined? Panel Discussion," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(3), pages 625-31, August.
    14. Gomme, P., 1993. "Money and Growth Revisited : Measuring the Costs of Inflation in an Endogenous Growth Model," Discussion Papers dp93-03, Department of Economics, Simon Fraser University.
    15. Kwanghee Nam & Thomas F. Cooley, 1998. "Asymmetric information, financial intermediation, and business cycles," Economic Theory, Springer, vol. 12(3), pages 599-620.
    16. repec:fth:simfra:93-03 is not listed on IDEAS
    17. Bronwyn Hall, 1992. "R&D Tax Policy During the Eighties: Success or Failure?," NBER Working Papers 4240, National Bureau of Economic Research, Inc.
    18. R. Mehra & E. Prescott, 2010. "The equity premium: a puzzle," Levine's Working Paper Archive 1401, David K. Levine.
    19. Einarsson, Tor & Marquis, Milton H, 1999. "Transitional and Steady-State Costs of Disinflation When Growth Is Endogenous," Economica, London School of Economics and Political Science, vol. 66(264), pages 489-508, November.
    20. C.C.A. Winder, 1997. "On the construction of European area-wide aggregates: a review of the issues and empirical evidence," WO Research Memoranda (discontinued) 499, Netherlands Central Bank, Research Department.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. C.K. Folkertsma & K. Hubrich, 2001. "Performance of core inflation measures," DNB Staff Reports (discontinued) 63, Netherlands Central Bank.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:dnb:staffs:54. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Rob Vet).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.