This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Transaction services, inflation, and welfare

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
S. Rao Aiyagari
R. Anton Braun
Zvi Eckstein

Additional information is available for the following registered author(s):

Abstract

This paper is motivated by a variety of empirical observations on the comovements of currency velocity, inflation, and the relative size of the "credit services" sector. By the credit services sector we mean the part of banking and credit sector which provides alternative means of transactions to using currency as well as other services which help people economize on currency. We incorporate the credit services sector into a monetary growth model. Our model makes two specific and new contributions. The first is to show that direct quantitative evidence on the welfare cost of low inflation using measures of the relative size of an appropriately defined credit services sector for the U.S. - essentially the cost incurred by banks and credit unions in providing demand deposit and credit card services - is consistent with the welfare cost measured using an estimated money demand curve following the classic analysis of Bailey (1956) and the more recent analysis of Lucas (1993). Both of these measures amount to about 0.5 percent of GNP. The second contribution is in providing welfare cost of inflation estimates over a range of inflation rates which have some new features. We find that the total welfare cost of inflation remains bounded at about 5 percent of consumption.> (Replaced by Staff Report No. 241)

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. 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.minneapolisfed.org/research/WP/WP551.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by Federal Reserve Bank of Minneapolis in its series Working Papers with number 551.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length:
Date of creation: 1995
Date of revision:
Handle: RePEc:fip:fedmwp:551

Contact details of provider:
Postal: 90 Hennepin Avenue, P.O. Box 291, Minneapolis, MN 55480-0291
Phone: (612) 204-5000
Web page: http://minneapolisfed.org/
More information through EDIRC

Order Information:
Email:
Web: http://www.minneapolisfed.org/pubs/

For technical questions regarding this item, or to correct its listing, contact: (Diane Rosenberger).

Related research
Keywords: Inflation (Finance) ; Welfare;

Other versions of this item:

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.:
  1. Stockman, Alan C., 1981. "Anticipated inflation and the capital stock in a cash in-advance economy," Journal of Monetary Economics, Elsevier, vol. 8(3), pages 387-393. [Downloadable!] (restricted)
  2. Gillman, Max, 1993. "The welfare cost of inflation in a cash-in-advance economy with costly credit," Journal of Monetary Economics, Elsevier, vol. 31(1), pages 97-115, February. [Downloadable!] (restricted)
  3. Garber, Peter M., 1982. "Transition from inflation to price stability," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 16(1), pages 11-42, January. [Downloadable!] (restricted)
    Other versions:
  4. King, Robert G., 1988. "Money demand in the United States: A quantitative review," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 29(1), pages 169-172, January. [Downloadable!] (restricted)
  5. Melnick, Rafi, 1995. "Financial Services, Cointegration, and the Demand for Money in Israel," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(1), pages 140-53, February. [Downloadable!] (restricted)
  6. S. Rao Aiyagari & Zvi Eckstein, 1995. "Interpreting monetary stabilization in a growth model with credit goods production," Working Papers 525, Federal Reserve Bank of Minneapolis. [Downloadable!]
  7. Wicker, Elmus R, 1986. "Terminating Hyperinflation in the Dismembered Habsburg Monarchy," American Economic Review, American Economic Association, vol. 76(3), pages 350-64, June. [Downloadable!] (restricted)
  8. Lucas, Robert E., 1988. "Money demand in the United States: A quantitative review," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 29(1), pages 137-167, January. [Downloadable!] (restricted)
  9. Stock, James H & Watson, Mark W, 1993. "A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems," Econometrica, Econometric Society, vol. 61(4), pages 783-820, July. [Downloadable!] (restricted)
    Other versions:
  10. Cooley, Thomas F & Hansen, Gary D, 1989. "The Inflation Tax in a Real Business Cycle Model," American Economic Review, American Economic Association, vol. 79(4), pages 733-48, September. [Downloadable!] (restricted)
    Other versions:
  11. Schreft, S L, 1992. "Transaction Costs and the Use of Cash and Credit," Economic Theory, Springer, vol. 2(2), pages 283-96, April.
  12. Lucas, Robert E, Jr & Stokey, Nancy L, 1987. "Money and Interest in a Cash-in-Advance Economy," Econometrica, Econometric Society, vol. 55(3), pages 491-513, May. [Downloadable!] (restricted)
    Other versions:
  13. Dotsey, Michael, 1985. " The Use of Electronic Funds Transfers to Capture the Effects of Cash Management Practices on the Demand for Demand Deposits: A Note," Journal of Finance, American Finance Association, vol. 40(5), pages 1493-1503, December. [Downloadable!] (restricted)
  14. Robert E. Lucas, Jr., 1994. "On the welfare cost of inflation," Working Papers in Applied Economic Theory 94-07, Federal Reserve Bank of San Francisco.
  15. Goldfeld, Stephen M. & Sichel, Daniel E., 1990. "The demand for money," Handbook of Monetary Economics, in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 1, chapter 8, pages 299-356 Elsevier. [Downloadable!] (restricted)
Full references

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.)
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.
Statistics
Access and download statistics

Did you know? IDEAS uses the data collected within the RePEc project, the largest online bibliographic database in Economics.

This page was last updated on 2009-10-29.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.