Inflation, Welfare, and the Time-Costs of Transacting
The costs of inflation are assessed using an endogenous growth macroeconomic model in which money reduces the time-costs of transacting. Inflation reduces growth in the model, which supports recent empirical evidence. Although simulations show time-costs to be small, inflation raises these costs and affects consumption, employment, and growth margins, implying greater welfare losses than generally found in the literature. The authors estimate welfare gains of 2 percent of GNP for reductions in inflation rates from 5 percent to zero when seignorage revenues are replaced with distortional taxes. Optimal inflation rates are negative.
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Volume (Year): 32 (1999)
Issue (Month): 1 (February)
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