Welfare Costs of Inflation, Seigniorage, and Financial Innovation
AbstractThe welfare effects of mitigating the costs of inflation are examined. In a model where money reduces transactions costs, a fall in inflation costs is equivalent to financial innovation. This can be caused by paying interest on deposits, indexing money, or "dollarizing." Results indicate that financial innovation raises welfare in low-inflation economies while reducing it in high-inflation economies because of the offsetting indirect effect of higher inflation to finance the budget.
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Bibliographic InfoPaper provided by International Monetary Fund in its series IMF Working Papers with number 91/1.
Date of creation: 01 Jan 1991
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Other versions of this item:
- JosÃ© De Gregorio, 1991. "Welfare Costs of Inflation, Seigniorage, and Financial Innovation," IMF Staff Papers, Palgrave Macmillan, vol. 38(4), pages 675-704, December.
- E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
- E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
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- NEP-ALL-2013-02-16 (All new papers)
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