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Comparing Partial And General Equilibrium Estimates Of The Welfare Cost Of Inflation

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  • Max Gillman

Abstract

Reserve banks worldwide have been moving towards zero inflation policies. Confusion clouds the welfare cost of maintaining such inflation policies despite the best attempts at clarification. Monetary theory research has shifted from partial to general equilibrium economies. This shift has left the partial equilibrium estimates of the welfare cost of inflation below most of the general equilibrium estimates. Put on a comparable basis, partial equilibrium estimates compare more closely with the general equilibrium estimates. Furthermore, evidence suggests that integration under the money demand function appears applicable in general equilibrium economies. Finally, the estimates depend on the elasticities of money demand and the underlying structural parameters.

Suggested Citation

  • Max Gillman, 1995. "Comparing Partial And General Equilibrium Estimates Of The Welfare Cost Of Inflation," Contemporary Economic Policy, Western Economic Association International, vol. 13(4), pages 60-71, October.
  • Handle: RePEc:bla:coecpo:v:13:y:1995:i:4:p:60-71
    DOI: 10.1111/j.1465-7287.1995.tb00732.x
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    Cited by:

    1. Rubens Penha Cysne, 2009. "Bailey's Measure of the Welfare Costs of Inflation as a General‐Equilibrium Measure," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(2‐3), pages 451-459, March.
    2. Calza, Alessandro & Zaghini, Andrea, 2010. "Sectoral money demand and the great disinflation in the US," Working Paper Series 1218, European Central Bank.
    3. Miller, Stephen M. & Martins, Luis Filipe & Gupta, Rangan, 2019. "A Time-Varying Approach Of The Us Welfare Cost Of Inflation," Macroeconomic Dynamics, Cambridge University Press, vol. 23(2), pages 775-797, March.
    4. Calza Alessandro & Zaghini Andrea, 2011. "Welfare Costs of Inflation and the Circulation of U.S. Currency Abroad," The B.E. Journal of Macroeconomics, De Gruyter, vol. 11(1), pages 1-21, May.
    5. Alessandro Calza & Andrea Zaghini, 2016. "Shoe-Leather Costs in the Euro Area and the Foreign Demand for Euro Banknotes," International Journal of Central Banking, International Journal of Central Banking, vol. 12(1), pages 231-246, March.
    6. Siffat Mushtaq & Abdul Rashid & Abdul Qayyum, 2012. "On the Welfare Cost of Inflation: The Case of Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 51(1), pages 61-96.
    7. Max Gillman & Michal Kejak, 2005. "Inflation and Balanced-Path Growth with Alternative Payment Mechanisms," Economic Journal, Royal Economic Society, vol. 115(500), pages 247-270, January.
    8. repec:ipg:wpaper:2014-474 is not listed on IDEAS
    9. Chadha, Jagjit S & Haldane, Andrew G & Janssen, Norbert G J, 1998. "Shoe-Leather Costs Reconsidered," Economic Journal, Royal Economic Society, vol. 108(447), pages 363-382, March.
    10. John Ashworth & David Barlow & Lynne Evans, 2014. "Sectoral Money Demand Behaviour and the Welfare Cost of Inflation in the UK," Manchester School, University of Manchester, vol. 82(6), pages 732-750, December.
    11. Alessandro Calza & Andrea Zaghini, 2010. "Sectoral Money Demand and the Great Disinflation in the United States," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(8), pages 1663-1678, December.
    12. Jeffrey Rogers Hummel, 2007. "Death and Taxes, Including Inflation: the Public versus Economists," Econ Journal Watch, Econ Journal Watch, vol. 4(1), pages 46-59, January.

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