The welfare effects of inflation: a cost-benefit perspective
AbstractThis paper reviews theory and evidence of the welfare effects of inflation from a costbenefit perspective. Basic models and selected empirical results are discussed. Historically, in assessing the welfare effects of inflation, the distortion of money demand played a prominent role. More recently, interactions of inflation and taxation came into focus. Growth effects of inflation as well as welfare effects of unanticipated inflation and of inflation uncertainty are also addressed. To assess the policy question whether inflation should be reduced or eliminated, the costs of disinflation play a role. Finally, the trade-off between the benefits of reducing inflation and the costs of disinflation is discussed and an overall assessment of the net welfare effects of achieving price stability is provided. --
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Bibliographic InfoPaper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2007,33.
Date of creation: 2007
Date of revision:
Inflation; price stability; welfare costs and benefits; distortions; money demand; consumption allocation; tax-inflation interaction;
Find related papers by JEL classification:
- E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-02-02 (All new papers)
- NEP-CBA-2008-02-02 (Central Banking)
- NEP-MAC-2008-02-02 (Macroeconomics)
- NEP-MON-2008-02-02 (Monetary Economics)
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