Hostname: page-component-8448b6f56d-dnltx Total loading time: 0 Render date: 2024-04-19T23:00:53.201Z Has data issue: false hasContentIssue false
  • English
  • Français

AN ORDERING OF MEASURES OF THE WELFARE COST OF INFLATION IN ECONOMIES WITH INTEREST-BEARING DEPOSITS

Published online by Cambridge University Press:  03 February 2012

Rubens Penha Cysne  and
David Turchick
Rubens Penha Cysne*
Affiliation:
Graduate School of Economics of the Getulio Vargas Foundation
David Turchick
Affiliation:
Graduate School of Economics of the Getulio Vargas Foundation
*
Address correspondence to: Rubens Penha Cysne, Praia de Botafogo 190, 11° andar, Rio de Janeiro, RJ 22250-900, Brazil; e-mail: rubens.cysne@fgv.br.
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper builds on Lucas [Econometrica 68 (2000), 247–274] and on Cysne [Journal of Money, Credit and Banking 35 (2003), 221–238] to derive and order six alternative measures of the welfare costs of inflation (five of them already existing in the literature) for any vector of opportunity costs. We provide examples and closed-form solutions for each welfare measure based both on log–log and on semilog money demands, whenever possible in terms of elementary functions. Estimates of the maximum relative error a researcher can incur when using any of these measures are given. Everything is done for economies with or without interest-bearing deposits.

Keywords

InflationWelfareInterest-Bearing AssetsMoney DemandDivisia Index
Type
Articles
Information
Macroeconomic Dynamics , Volume 16 , Issue 5 , November 2012 , pp. 732 - 751
Copyright
Copyright © Cambridge University Press 2012

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Bailey, Martin J. (1956) The welfare cost of inflationary finance. Journal of Political Economy 64, 93–110.CrossRefGoogle Scholar
Barnett, William A. (1979) The user cost of money. Economics Letters 1, 145–149.CrossRefGoogle Scholar
Barnett, William A. (1980) Economic monetary aggregates: An application of index number and aggregation theory. Journal of Econometrics 14, 11–48.CrossRefGoogle Scholar
Cavalcanti, Tiago V. de V. and Villamil, Anne P. (2003) Optimal inflation tax and structural reform. Macroeconomic Dynamics 7, 333–362.CrossRefGoogle Scholar
Cysne, Rubens P. (2003) Divisia index, inflation, and welfare. Journal of Money, Credit and Banking 35, 221–238.CrossRefGoogle Scholar
Cysne, Rubens P. (2005) A general-equilibrium closed-form solution to the welfare costs of inflation. Revista Brasileira de Economia 59, 209–214.CrossRefGoogle Scholar
Cysne, Rubens P. and Turchick, David (2009) On the integrability of money-demand functions by the Sidrauski and the shopping-time models. Journal of Banking & Finance 33, 1555–1562.CrossRefGoogle Scholar
Cysne, Rubens P. and Turchick, David (2010) Welfare costs of inflation when interest-bearing deposits are disregarded: A calculation of the bias. Journal of Economic Dynamics and Control 34, 1015–1030.CrossRefGoogle Scholar
Ireland, Peter N. (2009) On the welfare cost of inflation and the recent behavior of money demand. American Economic Review 99, 1040–1052.CrossRefGoogle Scholar
Jones, Barry, Asaftei, Gabriel, and Wang, Lian (2004) Welfare cost of inflation in a general equilibrium model with currency and interest-bearing deposits. Macroeconomic Dynamics 8, 493–517.CrossRefGoogle Scholar
Lucas, Robert E. Jr., (2000) Inflation and welfare. Econometrica 68, 247–274.CrossRefGoogle Scholar
McCallum, Bennett T. and Goodfriend, Marvin S. (1987) Demand for money: Theoretical studies. In Eatwell, John, Milgate, Murray, and Newman, Peter (eds.), The New Palgrave: A Dictionary of Economics, pp. 775–781. London: Macmillan/New York: Stockton.Google Scholar
Serletis, Apostolos and Yavari, Kazem (2004) The welfare cost of inflation in Canada and the United States. Economics Letters 84, 199–204.CrossRefGoogle Scholar
Sidrauski, Miguel (1967) Rational choice and patterns of growth in a monetary economy. American Economic Review 57, 534–544.Google Scholar
Simonsen, Mario H. and Cysne, Rubens P. (2001) Welfare costs of inflation and interest-bearing deposits. Journal of Money, Credit and Banking 33, 90–101.CrossRefGoogle Scholar