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Costs of Inflation


  • Driffill, John
  • Mizon, Grayham Ernest
  • Ulph, Alistair Mitchell


We review theoretical and empirical analyses of the costs of inflation. Part 2 of the paper examines microeconomic models in which inflation is perfectly anticipated, and viewed as the only distortion in the economy or as one of many distortionary taxes, which may or may not be chosen optimally. Part 3 turns to stochastic models with a more macroeconomic orientation, in which inflation is imperfectly perceived, or where real costs of price adjustment cause agents not to adjust fully in the presence of inflation. Part 4 discusses empirical work, which largely focuses on the relationship between the level of inflation, its variability, its unpredictability, and variation in relative prices.

Suggested Citation

  • Driffill, John & Mizon, Grayham Ernest & Ulph, Alistair Mitchell, 1989. "Costs of Inflation," CEPR Discussion Papers 293, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:293

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    Other versions of this item:

    • Driffill, John & Mizon, Grayham E. & Ulph, Alistair, 1990. "Costs of inflation," Handbook of Monetary Economics,in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 2, chapter 19, pages 1013-1066 Elsevier.

    References listed on IDEAS

    1. Robert C. Merton, 2005. "Theory of rational option pricing," World Scientific Book Chapters,in: Theory Of Valuation, chapter 8, pages 229-288 World Scientific Publishing Co. Pte. Ltd..
    2. Dixit, Avinash K, 1989. "Entry and Exit Decisions under Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 620-638, June.
    3. Lawrence H. Summers, 1981. "Taxation and Corporate Investment: A q-Theory Approach," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(1), pages 67-140.
    4. Blanchard, Olivier J, 1981. "Output, the Stock Market, and Interest Rates," American Economic Review, American Economic Association, vol. 71(1), pages 132-143, March.
    5. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-1176, December.
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    More about this item


    Fluctuations; Inflation; Welfare Costs;

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General


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