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Transaction Services, Inflation and Welfare

  • Aiyagari, S.R.
  • Braum, T.
  • Eckstein, Z.

This paper is motivated by empirical observations on the comovements of currency velocity, inflation, and the relative size of the credit services sector. We document these comovements and incorporate into a monetary growth model a credit services sector that provides services that help people economize on money. Our model makes two new contributions. First, we show that direct evidence on the appropriately defined credit service sector for the United States is consistent with the welfare cost measured using an estimated money demand schedule. Second, we provide welfare cost of inflation estimates that have some new features.

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Paper provided by Tel Aviv - the Sackler Institute of Economic Studies in its series Papers with number 27-95.

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Length: 37 pages
Date of creation: 1995
Date of revision:
Handle: RePEc:fth:teavsa:27-95
Contact details of provider: Postal: Tel-Aviv University, The Sackler Institute of Economic Studies, Ramat Aviv 69 978 Tel-Aviv, Israel
Phone: +972-3-640-9715
Fax: +972-3-640-9908
Web page: http://econ.tau.ac.il/
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  1. 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.
  2. Garber, Peter M., 1982. "Transition from inflation to price stability," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 16(1), pages 11-42, January.
  3. Robert E. Lucas Jr. & Nancy L. Stokey, 1984. "Money and Interest in Cash-In-Advance Economy," Discussion Papers 628, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. 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.
  5. King, Robert G., 1988. "Money demand in the United States: A quantitative review," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 29(1), pages 169-172, January.
  6. Dotsey, Michael, 1985. " The Use of Electronic Funds Transfers to Capture the Effects of Cash Management Practices on the Demand for Demand Deposits: A Note," Journal of Finance, American Finance Association, vol. 40(5), pages 1493-1503, December.
  7. Lucas, Robert E., 1988. "Money demand in the United States: A quantitative review," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 29(1), pages 137-167, January.
  8. Wicker, Elmus R, 1986. "Terminating Hyperinflation in the Dismembered Habsburg Monarchy," American Economic Review, American Economic Association, vol. 76(3), pages 350-64, June.
  9. Cooley, T.F. & Hansen, G.D., 1988. "The Inflation Tax In A Real Business Cycle Model," RCER Working Papers 155, University of Rochester - Center for Economic Research (RCER).
  10. Melnick, Rafi, 1995. "Financial Services, Cointegration, and the Demand for Money in Israel," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(1), pages 140-53, February.
  11. Goldfeld, Stephen M. & Sichel, Daniel E., 1990. "The demand for money," Handbook of Monetary Economics, in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 1, chapter 8, pages 299-356 Elsevier.
  12. Schreft, S L, 1992. "Transaction Costs and the Use of Cash and Credit," Economic Theory, Springer, vol. 2(2), pages 283-96, April.
  13. 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.
  14. 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.
  15. James H. Stock & Mark W. Watson, 1991. "A simple estimator of cointegrating vectors in higher order integrated systems," Working Paper Series, Macroeconomic Issues 91-3, Federal Reserve Bank of Chicago.
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