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Long-Run Analysis in Alternative Optimizing Monetary Models

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Abstract

This paper explores the transmission channel from monetary variables to real variables in the steady-state equilibria of various neoclassical optimizing models with money. The existence of superneutrality is rejected for the four models at hand: time-cost transactions approach, output-cost transactions approach, money in the utility function model, and cash-in-advance model. However, the real effects of high rates of inflation are not large: output, consumption, and investment slightly fall with higher inflation rates. In addition, the welfare cost of inflation is calculated for annual rates of inflation ranging from 0% to 50%. Three of the models (all but the cash-in-advance model) agree on the following result: a 10% rate of inflation creates a permanent welfare cost equal to 0.3% of GDP per year.

Suggested Citation

  • Miguel Casares, 2001. "Long-Run Analysis in Alternative Optimizing Monetary Models," Documentos de Trabajo - Lan Gaiak Departamento de Economía - Universidad Pública de Navarra 0107, Departamento de Economía - Universidad Pública de Navarra.
    • Handle: RePEc:nav:ecupna:0107
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    File URL: http://www2.unavarra.es/gesadj/depEconomia/repec/DocumentosTrab/DT0107.PDF
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    Cited by:

    1. Miguel Casares, 2004. "Price setting and the steady-state effects of inflation," Spanish Economic Review, Springer;Spanish Economic Association, vol. 6(4), pages 267-289, December.
    2. Miguel Casares, 2004. "Price setting and the steady-state effects of inflation," Spanish Economic Review, Springer;Spanish Economic Association, vol. 6(4), pages 267-289, December.

    More about this item

    Keywords

    money; superneutrality; welfare cost of inflation;
    All these keywords.

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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