Welfare Gains from Disinflation in an Economy With Currency Substitution (Para Ikamesinin Oldugu Bir Ekonomide Enflasyonun Dusurulmesinden Kaynaklanan Refah Kazanimlari)
This paper studies welfare gains from disinflation in the presence of currency substitution. A distinctive small open economy model with currency substitution and intermediated working capital is constructed for this objective. It is found that welfare gains from disinflation are higher when the baseline elasticity of substitution between foreign currency and domestic deposits is higher. Indeed the gains from disin?ation can be quite large compared to previous studies especially for moderate rates of inflation if the two assets are highly substitutable under the baseline scenario. After the benchmark economy is specified, the model is used to assess welfare gains from disinflation for a given level of financial development. The model implies that, higher currency substitution is welfare enhancing for high inflation rates but not for moderate and low inflation rates. In other words, currency substitution is not necessarily welfare enhancing.
|Date of creation:||2010|
|Date of revision:|
|Contact details of provider:|| Postal: Head Office, Istiklal Cad. 10 Ulus, 06100 Ankara|
Phone: (90 312) 507 5000
Fax: (90 312) 507 5640
Web page: http://www.tcmb.gov.tr
More information through EDIRC
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.:
- Sturzenegger, Federico, 1997. "Understanding the welfare implications of currency substitution," Journal of Economic Dynamics and Control, Elsevier, vol. 21(2-3), pages 391-416.
- Schmitt-Grohe, Stephanie & Uribe, Martin, 2003.
"Closing small open economy models,"
Journal of International Economics,
Elsevier, vol. 61(1), pages 163-185, October.
- Stephanie Schmitt-Grohe & Martin Uribe, 2001. "Closing Small Open Economy Models," Departmental Working Papers 200115, Rutgers University, Department of Economics.
- Stephanie Schmitt-Grohe & Martin Uribe, 2002. "Closing Small Open Economy Models," NBER Working Papers 9270, National Bureau of Economic Research, Inc.
- Schmitt-Grohé, Stephanie & Uribe, Martín, 2002. "Closing Small Open Economy Models," CEPR Discussion Papers 3096, C.E.P.R. Discussion Papers.
- Finn E. Kydland & Scott Freeman, 2000.
"Monetary Aggregates and Output,"
American Economic Review,
American Economic Association, vol. 90(5), pages 1125-1135, December.
- Espen Henriksen & Finn Kydland, 2010.
"Endogenous Money, Inflation and Welfare,"
Review of Economic Dynamics,
Elsevier for the Society for Economic Dynamics, vol. 13(2), pages 470-486, April.
- Espen Henriksen & Finn Kydland, 2009. "Code and data files for "Endogenous Money, Inflation and Welfare"," Computer Codes 07-125, Review of Economic Dynamics.
- Finn Kydland & Espen Henriksen, 2005. "Endogenous Money, Inflation and Welfare," 2005 Meeting Papers 919, Society for Economic Dynamics.
- Ariel Burstein & Christian Hellwig, 2008.
"Welfare Costs of Inflation in a Menu Cost Model,"
2008 Meeting Papers
1, Society for Economic Dynamics.
- Uribe, Martin, 1999. "Comparing the welfare costs and initial dynamics of alternative inflation stabilization policies," Journal of Development Economics, Elsevier, vol. 59(2), pages 295-318, August.
- Vegh, Carlos A., 1995. "Inflationary finance and currency substitution in a public finance framework," Journal of International Money and Finance, Elsevier, vol. 14(5), pages 679-693, October.
- Özbilgin, H. Murat, 2010.
"Financial market participation and the developing country business cycle,"
Journal of Development Economics,
Elsevier, vol. 92(2), pages 125-137, July.
- Huseyin Murat Ozbilgin, 2009. "Financial Market Participation and the Developing Country Business Cycle," Working Papers 0904, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
- Engel, Charles, 1989. "The trade balance and real exchange rate under currency substitution," Journal of International Money and Finance, Elsevier, vol. 8(1), pages 47-58, March.
- Holman, Jill A. & Neanidis, Kyriakos C., 2006. "Financing government expenditures in an open economy," Journal of Economic Dynamics and Control, Elsevier, vol. 30(8), pages 1315-1337, August.
- Greenwood, Jeremy & Hercowitz, Zvi & Huffman, Gregory W, 1988. "Investment, Capacity Utilization, and the Real Business Cycle," American Economic Review, American Economic Association, vol. 78(3), pages 402-17, June.
- Mendoza, Enrique G, 1991. "Real Business Cycles in a Small Open Economy," American Economic Review, American Economic Association, vol. 81(4), pages 797-818, September.
- L. Wade, 1988. "Review," Public Choice, Springer, vol. 58(1), pages 99-100, July.
- Scott J. Dressler, 2007. "The Cyclical Effects Of Monetary Policy Regimes," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(2), pages 551-573, 05.
- Calvo, Guillermo A., 1985. "Currency substitution and the real exchange rate: the utility maximization approach," Journal of International Money and Finance, Elsevier, vol. 4(2), pages 175-188, June.
- Robert E. Lucas, Jr., 2000. "Inflation and Welfare," Econometrica, Econometric Society, vol. 68(2), pages 247-274, March.
When requesting a correction, please mention this item's handle: RePEc:tcb:wpaper:1009. 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: (Ozlem Ekmekciler Ramalho Rocha)or (Ilker Cakar)
If references are entirely missing, you can add them using this form.