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The n-dimensional Bailey–Divisia measure as a general-equilibrium measure of the welfare costs of inflation

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  • Cysne, Rubens Penha

Abstract

This paper shows that in economies with several monies the Bailey–Divisia multidimensional consumers’ surplus formula may emerge as an exact general-equilibrium measure of the welfare costs of inflation, provided that preferences are quasilinear.

Suggested Citation

  • Cysne, Rubens Penha, 2011. "The n-dimensional Bailey–Divisia measure as a general-equilibrium measure of the welfare costs of inflation," Economics Letters, Elsevier, vol. 113(2), pages 99-102.
    • Handle: RePEc:eee:ecolet:v:113:y:2011:i:2:p:99-102
    DOI: 10.1016/j.econlet.2011.06.004
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    1. Peter N. Ireland, 2009. "On the Welfare Cost of Inflation and the Recent Behavior of Money Demand," American Economic Review, American Economic Association, vol. 99(3), pages 1040-1052, June.
    2. Cysne, Rubens Penha & Turchick, David, 2010. "Welfare costs of inflation when interest-bearing deposits are disregarded: A calculation of the bias," Journal of Economic Dynamics and Control, Elsevier, vol. 34(6), pages 1015-1030, June.
    3. Baltensperger, Ernst & Jordan, Thomas J., 1997. "Seigniorage, banking, and the optimal quantity of money," Journal of Banking & Finance, Elsevier, vol. 21(6), pages 781-796, June.
    4. Orazio P. Attanasio & Luigi Guiso & Tullio Jappelli, 2002. "The Demand for Money, Financial Innovation, and the Welfare Cost of Inflation: An Analysis with Household Data," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 317-351, April.
    5. Robert E. Lucas, 2001. "Inflation and Welfare," International Economic Association Series, in: Axel Leijonhufvud (ed.), Monetary Theory as a Basis for Monetary Policy, chapter 4, pages 96-142, Palgrave Macmillan.
    6. 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.
    7. Alvin L. Marty, 1999. "The welfare cost of inflation: a critique of Bailey and Lucas," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 41-46.
    8. Cysne, Rubens P, 2003. "Divisia Index, Inflation, and Welfare," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(2), pages 221-238, April.
    9. Alvin L. Marty, 1994. "The inflation tax and the marginal welfare cost in a world of currency and deposits," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 67-71.
    10. Stephen M. Goldfeld, 1976. "The Case of the Missing Money," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 7(3), pages 683-740.
    11. Stephen M. Goldfeld, 1973. "The Demand for Money Revisited," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 4(3), pages 577-646.
    12. Cysne, Rubens Penha & Turchick, David, 2012. "An Ordering Of Measures Of The Welfare Cost Of Inflation In Economies With Interest-Bearing Deposits," Macroeconomic Dynamics, Cambridge University Press, vol. 16(5), pages 732-751, November.
    13. Judd, John P & Scadding, John L, 1982. "The Search for a Stable Money Demand Function: A Survey of the Post-1973 Literature," Journal of Economic Literature, American Economic Association, vol. 20(3), pages 993-1023, September.
    14. John P. Judd & John L. Scadding, 1982. "The search for a stable money demand function: a survey of the post- 1973 literature," Working Papers in Applied Economic Theory 109, Federal Reserve Bank of San Francisco.
    15. Garcia, Gillian & Pak, Simon, 1979. "Some Clues in the Case of the Missing Money," American Economic Review, American Economic Association, vol. 69(2), pages 330-334, May.
    16. Pedro Teles & Ruilin Zhou, 2005. "A stable money demand: Looking for the right monetary aggregate," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 29(Q I), pages 50-63.
    17. Casey B. Mulligan & Xavier Sala-i-Martin, 2000. "Extensive Margins and the Demand for Money at Low Interest Rates," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 961-991, October.
    18. Marty, Alvin L & Chaloupka, Frank J, 1988. "Optimal Inflation Rates: A Generalization," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 20(1), pages 141-144, February.
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    More about this item

    Keywords

    Inflation; Welfare; Bailey; Divisia; Surplus; Index;
    All these keywords.

    JEL classification:

    • C0 - Mathematical and Quantitative Methods - - General
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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