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On Skill Heterogeneity, Human Capital, and Inflation

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  • Radhika Lahiri
  • Elisabetta Magnani

    (School of Economics and Finance, Queensland University of Technology)

Abstract

This paper examines the welfare costs of inflation within a monetary dynamic general equilibrium framework with human capital that incorporates endogenous, ex ante skill heterogeneity among workers. Numerical experiments indicate that, overall, welfare costs are more likely to decrease with increases in skill heterogeneity. An implication of this feature is that a greater degree of skill heterogeneity may be associated with a higher tolerance for inflation, consequently implying a positive correlation between agent heterogeneity and inflation. Using a panel of several countries we empirically test this proposition. Our evidence lends some support to this hypothesis.

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File URL: http://external-apps.qut.edu.au/business/documents/discussionPapers/2005/No%20205%20Lahiri%20and%20Magnani.pdf
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Paper provided by School of Economics and Finance, Queensland University of Technology in its series School of Economics and Finance Discussion Papers and Working Papers Series with number 205.

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Date of creation: 15 Jun 2005
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Handle: RePEc:qut:dpaper:205

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  1. Saint-Paul, Gilles & Verdier, Thierry, 1993. "Education, democracy and growth," Journal of Development Economics, Elsevier, vol. 42(2), pages 399-407, December.
  2. Cukierman, Alex & Webb, Steven B & Neyapti, Bilin, 1992. "Measuring the Independence of Central Banks and Its Effect on Policy Outcomes," World Bank Economic Review, World Bank Group, vol. 6(3), pages 353-98, September.
  3. Cukierman, A. & Webb, S., 1994. "Political Influence on the Central Bank : International Evidence," Discussion Paper 1994-100, Tilburg University, Center for Economic Research.
  4. Jim Dolmas & Gregory W. Huffman & Mark A. Wynne, 1997. "Inequality, inflation, and central bank independence," Working Papers 9705, Federal Reserve Bank of Dallas.
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