Coexistence and welfare cost of inflation

Manjong Lee

doi:10.1016/j.jmacro.2012.12.003

Coexistence and welfare cost of inflation

Manjong Lee

Research output: Contribution to journal › Article › peer-review

1 Citation (Scopus)

Abstract

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 language	English
Pages (from-to)	23-32
Number of pages	10
Journal	Journal of Macroeconomics
Volume	36
DOIs	https://doi.org/10.1016/j.jmacro.2012.12.003
Publication status	Published - 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.

Keywords

Coexistence
Interest-bearing liquid asset
Welfare cost

ASJC Scopus subject areas

Economics and Econometrics

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10.1016/j.jmacro.2012.12.003

Cite this

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title = "Coexistence and welfare cost of inflation",

abstract = "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.",

keywords = "Coexistence, Interest-bearing liquid asset, Welfare cost",

author = "Manjong Lee",

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. ",

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N1 - 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.

PY - 2013/6

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N2 - 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.

AB - 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.

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KW - Interest-bearing liquid asset

KW - Welfare cost

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SN - 0164-0704

VL - 36

SP - 23

EP - 32

JO - Journal of Macroeconomics

JF - Journal of Macroeconomics

ER -

Coexistence and welfare cost of inflation

Abstract

Bibliographical note

Keywords

ASJC Scopus subject areas

Access to Document

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