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Welfare Cost of Inflation, when Credit Card Transaction Services Are Included among Monetary Services

Author

Listed:
  • William Barnett

    (Department of Economics, University of Kansas and Center for Financial Stability, New York City)

  • Sohee Park

    (Department of Economics, Valparaiso University, Valparaiso, IN 46383, USA)

Abstract

We investigate the welfare cost of anticipated inflation, when the volume of credit card transactions is included in measured monetary service flows. We use the credit-card-augmented Divisia monetary aggregates in a nonlinear dynamic stochastic general equilibrium (DSGE) New Keynesian model and calculate the welfare costs of inflation. The welfare costs of inflation with credit card services included are greater than without them in the New Keynesian DSGE model. Because of the complexity of the model’s dynamical structure, we are not aware of a simple explanation for the increased welfare sensitivity to inflation.

Suggested Citation

  • William Barnett & Sohee Park, 2023. "Welfare Cost of Inflation, when Credit Card Transaction Services Are Included among Monetary Services," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 202306, University of Kansas, Department of Economics.
    • Handle: RePEc:kan:wpaper:202306
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    File URL: http://www2.ku.edu/~kuwpaper/2023Papers/202306.pdf
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    More about this item

    Keywords

    Welfare Cost; Divisia; Credit-Card-Augmented Divisia; Monetary Aggregates; Money Demand; Inflation; nonlinear dynamics.;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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