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Seigniorage and the welfare cost of inflation: evidence from an intertemporal model of money and consumption

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  • Zvi Eckstein
  • Leonardo Leiderman

Abstract

This paper empirically investigates the restrictions embodied in a popular dynamic monetary model for the cross relations between consumption, money holdings, inflation and assets returns using quarterly data for the high-inflation economy in Israel, 19701988. The model considered includes money in agents utility function. A set of the estimated parameters is used in the analysis to assess the models quantitative implications for seigniorage and for the welfare costs of inflation. The estimates are found to account well for the observed stability over time of seigniorage in Israel and imply sizeable welfare costs of inflation.

Suggested Citation

  • Zvi Eckstein & Leonardo Leiderman, 1991. "Seigniorage and the welfare cost of inflation: evidence from an intertemporal model of money and consumption," Discussion Paper / Institute for Empirical Macroeconomics 40, Federal Reserve Bank of Minneapolis.
    • Handle: RePEc:fip:fedmem:40
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    References listed on IDEAS

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    Keywords

    Inflation (Finance); Money;

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