The Welfare Costs of Inflation in a Micro-Founded Macroeconometric Model
This paper computes the welfare costs of inflation in an estimated dynamic stochastic general equilibrium model of the U.S. economy. Both steady state and transitional welfare results are reported. I find that a 10 percent inflation entails a steady state welfare cost of 1.9 % of annual consumption. Taking into account trasitional effects, the cost drops to 1.2%. Under some circumstances, the transitional effects can erase most of the steady state welfare losses. The role of nominal frictions such as price/wage sluggishness as well as that of uncertainty are also addressed.
|Date of creation:||Jul 2007|
|Date of revision:|
|Note:||First draft 2007-06|
|Contact details of provider:|| Phone: (919) 515-3274|
Web page: http://www.mgt.ncsu.edu/faculty/economics.html
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:ncs:wpaper:013. 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: (Theofanis Tsoulouhas)The email address of this maintainer does not seem to be valid anymore. Please ask Theofanis Tsoulouhas to update the entry or send us the correct email address
If references are entirely missing, you can add them using this form.