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Cost of Inflation in Inventory Theoretical Models

Author

Listed:
  • Fernando Alvarez

    (University of Chicago)

  • Francesco Lippi

    (Istituto Einaudi)

  • Roberto Robatto

    (University of Wisconsin)

Abstract

We show that the area under the long-run demand curve for money approximates the welfare cost of inflation for a large class of inventory theoretical models of money demand. The class of inventory models considered has a general stochastic structure of the net cash expenditures, as well as of the fixed/variable cost of withdrawing and depositing money. Thus, our framework nests a large number of models that have been studied in the literature. The results complement those obtained by Lucas (2000) for money-in-the-utility function and for shopping-time models. (Copyright: Elsevier)

Suggested Citation

  • Fernando Alvarez & Francesco Lippi & Roberto Robatto, 2019. "Cost of Inflation in Inventory Theoretical Models," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 32, pages 206-226, April.
  • Handle: RePEc:red:issued:18-233
    DOI: 10.1016/j.red.2018.11.001
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    2. Bernardino Adão & André C. Silva, 2021. "Government financing, inflation, and the financial sector," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 71(4), pages 1357-1396, June.
    3. Martin Brown & Nicole Hentschel & Hannes Mettler & Helmut Stix, 2020. "Financial Innovation, Payment Choice and Cash Demand - Causal Evidence from the Staggered Introduction of Contactless Debit Cards," Working Papers on Finance 2002, University of St. Gallen, School of Finance.
    4. Luca Benati & Juan-Pablo Nicolini, 2019. "The Welfare Costs of Inflation," Diskussionsschriften dp1911, Universitaet Bern, Departement Volkswirtschaft.

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    More about this item

    Keywords

    Money demand; Welfare cost of inflation; Inventory theoretical models;
    All these keywords.

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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