Inflation and financial sector size
Traditionally, the cost of expected inflation has been seen as the "shoeleather cost" of going to the bank more often. This paper focuses on the other side of these transactions--i.e., on the increased production of financial services by financial firms. I construct a model in which households must make purchases either with cash or with costly transactions services produced by firms in the financial services sector. Higher inflation leads households to substitute purchased transactions services for money balances, increasing the size of the financial sector. A test of the model using cross-sectional data suggests that this effect is large.
|Date of creation:||1996|
|Date of revision:|
|Contact details of provider:|| Postal: 20th Street and Constitution Avenue, NW, Washington, DC 20551|
Web page: http://www.federalreserve.gov/
More information through EDIRC
|Order Information:||Web: http://www.federalreserve.gov/pubs/feds/fedsorder.html|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Harold L. Cole & Alan C. Stockman, 1988.
"Specialization, Transactions Technologies, and Money Growth,"
NBER Working Papers
2724, National Bureau of Economic Research, Inc.
- Cole, Harold L & Stockman, Alan C, 1992. "Specialization, Transactions Technologies, and Money Growth," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(2), pages 283-98, May.
- Cole, H. & Stockman, A.C., 1988. "Specialization, Transactions Technologies, And Money Growth," RCER Working Papers 153, University of Rochester - Center for Economic Research (RCER).
- Cooley, T.F. & Hansen, G.D., 1991.
"The Welfare Costs of Moderate Inflations,"
RCER Working Papers
266, University of Rochester - Center for Economic Research (RCER).
- Cooley, Thomas F & Hansen, Gary D, 1991. "The Welfare Costs of Moderate Inflations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(3), pages 483-503, August.
- Thomas F. Cooley & Gary D. Hansen, 1991. "The welfare costs of moderate inflations," Proceedings, Federal Reserve Bank of Cleveland, pages 483-518.
- Robert E. Lucas, Jr., 1994. "On the welfare cost of inflation," Working Papers in Applied Economic Theory 94-07, Federal Reserve Bank of San Francisco.
- Robert Summers & Alan Heston, 1991. "The Penn World Table (Mark 5): An Expanded Set of International Comparisons, 1950–1988," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 327-368.
- Fischer, Stanley, 1993.
"The role of macroeconomic factors in growth,"
Journal of Monetary Economics,
Elsevier, vol. 32(3), pages 485-512, December.
- David Romer, 1986. "A Simple General Equilibrium Version of the Baumol-Tobin Model," The Quarterly Journal of Economics, Oxford University Press, vol. 101(4), pages 663-685.
- Dotsey, Michael & Ireland, Peter, 1996.
"The welfare cost of inflation in general equilibrium,"
Journal of Monetary Economics,
Elsevier, vol. 37(1), pages 29-47, February.
- Michael Dotsey & Peter N. Ireland, 1994. "The welfare cost of inflation in general equilibrium," Working Paper 94-04, Federal Reserve Bank of Richmond.
- Liliana Rojas-SuÃ¡rez, 1992. "Currency Substitution and Inflation in Peru," IMF Working Papers 92/33, International Monetary Fund.
- Schreft, S L, 1992. "Transaction Costs and the Use of Cash and Credit," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 2(2), pages 283-96, April.
- Stockman, Alan C., 1981. "Anticipated inflation and the capital stock in a cash in-advance economy," Journal of Monetary Economics, Elsevier, vol. 8(3), pages 387-393.
- Melvin, Michael, 1988. "The Dollarization of Latin America as a Market-Enforced Monetary Reform: Evidence and Implications," Economic Development and Cultural Change, University of Chicago Press, vol. 36(3), pages 543-58, April.
- Steven B. Kamin & Neil R. Ericsson, 1993. "Dollarization in Argentina," International Finance Discussion Papers 460, Board of Governors of the Federal Reserve System (U.S.).
- Gillman, Max, 1993. "The welfare cost of inflation in a cash-in-advance economy with costly credit," Journal of Monetary Economics, Elsevier, vol. 31(1), pages 97-115, February.
- S. Rao Aiyagari & Zvi Eckstein, 1995. "Interpreting monetary stabilization in a growth model with credit goods production," Working Papers 525, Federal Reserve Bank of Minneapolis.
When requesting a correction, please mention this item's handle: RePEc:fip:fedgfe:96-16. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Franz Osorio)
If references are entirely missing, you can add them using this form.