Inflation and welfare in long-run equilibrium with firm dynamics
AbstractWe analyze the welfare cost of inflation in a model with cash-in-advance constraints and an endogenous distribution of establishments' productivities. Inflation distorts aggregate productivity through firm entry dynamics. The model is calibrated to the United States economy and the long-run equilibrium properties are compared at low and high inflation. We find that increasing the annual inflation rate by 10 percentage points above the average rate in the U.S. would result in a fall in average productivity of roughly 1.3 percent. This decrease in productivity is not innocuous: it is responsible for about one half of the welfare cost of inflation.
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Bibliographic InfoPaper provided by Centro de Economía Aplicada, Universidad de Chile in its series Documentos de Trabajo with number 261.
Date of creation: 2009
Date of revision:
Other versions of this item:
- Alexandre Janiak & Paulo Santos Monteiro, 2011. "Inflation and Welfare in Long‐Run Equilibrium with Firm Dynamics," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(5), pages 795-834, 08.
- Janiak, Alexandre & Monteiro, Paulo Santos, 2009. "Inflation and welfare in long-run equilibrium with firm dynamics," The Warwick Economics Research Paper Series (TWERPS) 910, University of Warwick, Department of Economics.
- Janiak, Alexandre & Monteiro, Paulo Santos, 2009. "Inflation and Welfare in Long-Run Equilibrium with Firm Dynamics," IZA Discussion Papers 4559, Institute for the Study of Labor (IZA).
- E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
- E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
- L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
- O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-05-09 (All new papers)
- NEP-CBA-2009-05-09 (Central Banking)
- NEP-DGE-2009-05-09 (Dynamic General Equilibrium)
- NEP-MAC-2009-05-09 (Macroeconomics)
- NEP-MON-2009-05-09 (Monetary Economics)
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Inflation and Welfare in Long-Run Equilibrium with Firm Dynamics
by Christian Zimmermann in NEP-DGE blog on 2009-11-29 17:07:09
- Henning Weber, 2012. "The Optimal Inflation Rate and Firm-Level Productivity Growth," Kiel Working Papers 1773, Kiel Institute for the World Economy.
- Alexandre Janiak, 2010. "Structural unemployment and the regulation of product market," Documentos de Trabajo 274, Centro de Economía Aplicada, Universidad de Chile.
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