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Evaluating the welfare effects of alternative monetary arrangements

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  • Ayse Imrohoroglu
  • Edward C. Prescott

Abstract

The welfare effects of alternative monetary arrangements are computed for an economy calibrated to U.S. data. In the model world, people vary their holdings of liquid assets in order to smooth their consumption. In such worlds, we find that the feature of an arrangement that matters is the equilibrium after-tax real return on savings. We also find that relative to a tax on labor income, seigniorage is a poor source of revenue.

Suggested Citation

  • Ayse Imrohoroglu & Edward C. Prescott, 1991. "Evaluating the welfare effects of alternative monetary arrangements," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 3-10.
  • Handle: RePEc:fip:fedmqr:y:1991:i:sum:p:3-10:n:v.15no.3
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    References listed on IDEAS

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    1. Fischer, Stanley, 1981. "Towards an understanding of the costs of inflation: II," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 15(1), pages 5-41, January.
    2. Cooley, Thomas F & Hansen, Gary D, 1989. "The Inflation Tax in a Real Business Cycle Model," American Economic Review, American Economic Association, vol. 79(4), pages 733-748, September.
    3. Hansen, Gary D., 1985. "Indivisible labor and the business cycle," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 309-327, November.
    4. Rogerson, Richard, 1988. "Indivisible labor, lotteries and equilibrium," Journal of Monetary Economics, Elsevier, vol. 21(1), pages 3-16, January.
    5. Andreas Hornstein & Edward C. Prescott, 1989. "The firm and the plant in general equilibrium theory," Staff Report 126, Federal Reserve Bank of Minneapolis.
    6. Timothy J. Kehoe & David K. Levine & Michael Woodford, 1990. "The optimum quantity of money revisited," Working Papers 404, Federal Reserve Bank of Minneapolis.
    7. Lucas, Robert E, Jr, 1980. "Equilibrium in a Pure Currency Economy," Economic Inquiry, Western Economic Association International, vol. 18(2), pages 203-220, April.
    8. Scheinkman, Jose A & Weiss, Laurence, 1986. "Borrowing Constraints and Aggregate Economic Activity," Econometrica, Econometric Society, vol. 54(1), pages 23-45, January.
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    Cited by:

    1. Matthias Doepke, "undated". "Inflation as a Redistribution Shock: Effects on Aggregates and Welfare," UCLA Economics Online Papers 412, UCLA Department of Economics.
    2. Akyol, Ahmet, 2004. "Optimal monetary policy in an economy with incomplete markets and idiosyncratic risk," Journal of Monetary Economics, Elsevier, vol. 51(6), pages 1245-1269, September.
    3. Coleman, Wilbur John, II, 1993. "Solving Nonlinear Dynamic Models on Parallel Computers," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(3), pages 325-330, July.
    4. Preston J. Miller & Richard M. Todd, 1992. "Real effects of monetary policy in a world economy," Staff Report 154, Federal Reserve Bank of Minneapolis.
    5. Erosa, Andres & Ventura, Gustavo, 2002. "On inflation as a regressive consumption tax," Journal of Monetary Economics, Elsevier, vol. 49(4), pages 761-795, May.
    6. Miller, Preston J. & Todd, Richard M., 1995. "Real effects of monetary policy in a world economy," Journal of Economic Dynamics and Control, Elsevier, vol. 19(1-2), pages 125-153.
    7. Clark A. Burdick, 1997. "A transitional analysis of the welfare cost of inflation," FRB Atlanta Working Paper 97-15, Federal Reserve Bank of Atlanta.
    8. Freeman, John R., 1996. "A Computable Equilibrium Model for the Study of Political Economy," Bulletins 7484, University of Minnesota, Economic Development Center.
    9. Sunel, Enes, 2010. "On inflation, wealth inequality and welfare in emerging economies," MPRA Paper 25943, University Library of Munich, Germany.

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    Keywords

    Monetary policy;

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