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An ordering of measures of the welfare cost of inflation in economies with interest-bearing deposits

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  • Cysne, Rubens Penha
  • Turchick, David

Abstract

This paper builds on Lucas (2000) and on Cysne (2003) to derive and order six alternative measures of the welfare costs of inflation (five of which already existing in the literature) for any vector of opportunity costs. The ordering of the functions is carried out for economies with or without interestbearing deposits. We provide examples and closed-form solutions for the log-log money demand both in the unidimensional and in the multidimensional setting (when interest-bearing monies are present). An estimate of the maximum relative error a researcher can incur when using any particular measure is also provided.

Suggested Citation

  • Cysne, Rubens Penha & Turchick, David, 2007. "An ordering of measures of the welfare cost of inflation in economies with interest-bearing deposits," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 659, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
  • Handle: RePEc:fgv:epgewp:659
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    References listed on IDEAS

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    1. 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.
    2. Cysne, Rubens P, 2003. "Divisia Index, Inflation, and Welfare," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(2), pages 221-238, April.
    3. Cysne, Rubens Penha, 2004. "A general-equilibrium closed-form solution to the welfare costs of inflation (Forthcoming, Revista Brasileira de Economia)," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 562, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    4. Cysne, Rubens Penha, 2005. "A General-Equilibrium Closed-Form Solution to the Welfare Costs of Inflation," Revista Brasileira de Economia - RBE, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil), vol. 59(2), April.
    5. Simonsen, Mario Henrique & Cysne, Rubens Penha, 2001. "Welfare Costs of Inflation and Interest-Bearing Money," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(1), pages 90-100, February.
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    Cited by:

    1. 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.
    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. Cysne, Rubens Penha & Turchick, David, 2008. "On the consistency of arbitrary money-demand functions with the Sidrauski and the shopping-time models," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 666, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    4. Matteo Mogliani & Giovanni Urga, 2018. "On the Instability of Long‐Run Money Demand and the Welfare Cost of Inflation in the United States," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 50(7), pages 1645-1660, October.
    5. 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.
    6. Ireland, Peter N., 2014. "The Macroeconomic Effects Of Interest On Reserves," Macroeconomic Dynamics, Cambridge University Press, vol. 18(6), pages 1271-1312, September.
    7. Cysne, Rubens Penha & Turchick, David, 2009. "On the integrability of money-demand functions by the Sidrauski and the shopping-time models," Journal of Banking & Finance, Elsevier, vol. 33(9), pages 1555-1562, September.

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