Shoe-Leather Costs Reconsidered
R. E. Lucas (1995) has recently suggested that the 'shoe-leather' costs of inflation may amount to as much as 1 percent of GNP in the United States when moving to the Friedman optimum. The authors assess his thesis using empirical evidence for the United Kingdom over the period 1870-1994. They find support for Lucas's proposition--that interest rates should be specified in logs--as a description of money demand dynamics but not as a steady-state characterization. Although Lucas's estimates can be corroborated, a semilog interest rate specification implies smaller, though still tangible, welfare gain estimates: for example, 0.22 percent of GNP in perpetuity when moving from 6 percent to 2 percent nominal interest rates.
Volume (Year): 108 (1998)
Issue (Month): 447 (March)
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References listed on IDEAS
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"Shoe-Leather Costs Reconsidered,"
Royal Economic Society, vol. 108(447), pages 363-382, March.
- Jag Chadha & Andrew Haldane & Norbert Janssen, 1998. "Shoe-leather costs reconsidered," Bank of England working papers 86, Bank of England.
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