Coexistence and welfare cost of inflation

Manjong Lee

Research output: Contribution to journalArticlepeer-review

1 Citation (Scopus)


The welfare cost of inflation is studied with a model in which non-interest-bearing money coexists with an interest-bearing liquid asset. Compared to a money-only model, the presence of an interest-bearing liquid asset reduces the consumption distortion of inflation. However, it also induces the deadweight losses associated with intermediary cost and foregone return. Our result shows that the positive effect of the former is dominated by the negative effect of the latter, which suggests that existing measures of inflation cost with a money-only model would most likely be underrated.

Original languageEnglish
Pages (from-to)23-32
Number of pages10
JournalJournal of Macroeconomics
Publication statusPublished - 2013 Jun

Bibliographical note

Funding Information:
I would like to thank two anonymous referees whose comments and suggestions were very helpful in improving the quality of the paper. Financial support from the National Research Foundation of Korea (NRF-2011-330-B00055) is gratefully acknowledged. The usual disclaimer applies.


  • Coexistence
  • Interest-bearing liquid asset
  • Welfare cost

ASJC Scopus subject areas

  • Economics and Econometrics


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