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Is the demand for retirement consumption linear?

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  • Hasan Bakhshi

Abstract

When estimating the welfare gains from moving from 2% inflation to price stability, Feldstein assumes that the compensated demand curve for retirement consumption is linear. Lucas has argued, in the shoe leather costs literature, that money demand functions are best specified as log-linear rather than linear. And the implications for the welfare costs of inflation are consequently very large. This note argues that linearity of the demand curve for retirement consumption is a good approximation for plausible parameter values and for the changes in inflation that Feldstein is considering.

Suggested Citation

  • Hasan Bakhshi, 1999. "Is the demand for retirement consumption linear?," Applied Economics Letters, Taylor & Francis Journals, vol. 6(10), pages 669-671.
    • Handle: RePEc:taf:apeclt:v:6:y:1999:i:10:p:669-671
    DOI: 10.1080/135048599352475
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    References listed on IDEAS

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    1. Chadha, Jagjit S & Haldane, Andrew G & Janssen, Norbert G J, 1998. "Shoe-Leather Costs Reconsidered," Economic Journal, Royal Economic Society, vol. 108(447), pages 363-382, March.
    2. Hasan Bakhshi & Andrew Haldane & Neal Hatch, 1998. "Some costs and benefits of price stability in the UK," Bank of England working papers 78, Bank of England.
    3. Hasan Bakhshi & Andrew Haldane & Neal Hatch, 1999. "Some Costs and Benefits of Price Stability in the United Kingdom," NBER Chapters, in: The Costs and Benefits of Price Stability, pages 133-198, National Bureau of Economic Research, Inc.
    4. Martin S. Feldstein, 1997. "The Costs and Benefits of Going from Low Inflation to Price Stability," NBER Chapters, in: Reducing Inflation: Motivation and Strategy, pages 123-166, National Bureau of Economic Research, Inc.
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