Download or read book On Price Stability and Welfare written by Mr.Etienne B. Yehoue and published by International Monetary Fund. This book was released on 2012-07-01 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: The financial crisis in the advanced countries that began in 2007 has led central bankers to adopt unconventional policy measures as policy interest rates neared the zero bound. One suggestion (Blanchard, Dell’Ariccia, and Mauro, 2010) has been to raise inflation targets to provide more room for policy rate easing during crises. This paper addresses a different issue: the relationship between inflation and welfare. The literature is surveyed and a model is developed. A key conclusion is that an increase in inflation targets gives rise to additional welfare costs, even after the extra room to maneuver above the zero lower bound for nominal policy rates is taken into account. Based on parameter values that fit U.S. data, the additional welfare costs of raising inflation targets from 2 to 4 percent are estimated at about 0.3 percent of annual real income. A rise to 10 percent would yield additional welfare costs of about 1 percent of real income. Other parameter values yield welfare costs as high as 7 (respectively 30) percent of real income for raising inflation targets from 2 to 4 (respectively from 2 to 10) percent. The full costs of raising inflation targets are likely to be higher because the model used to generate these estimates does not account for higher inflation-induced volatility.
Download or read book Welfare Cost of Low Inflation written by Mr.Howell H. Zee and published by International Monetary Fund. This book was released on 1998-08-01 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper provides general equilibrium estimates of the steady-state welfare gains of lowering inflation from a low level to close to price stability, using an overlapping-generations growth model. Money demand is modeled on the basis that real money balances are a factor of production. Assuming a standard Fisher equation modified by the presence of an income tax, it is found that inflation unambiguously reduces capital intensity, drives up the before-tax real rate of return to capital, and unambiguously imposes a life-time welfare cost. This welfare cost is, however, quantitatively very modest (under 0.2 percent of GDP annually) within reasonable ranges of all parameter values.
Download or read book Welfare Costs of Inflation Seigniorage and Financial innovation written by Mr.Jose De Gregorio and published by International Monetary Fund. This book was released on 1991-01-01 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the welfare effects of mitigating the costs of inflation. In a simple model where money reduces transaction costs, a fall in the costs of inflation is equivalent to financial innovation. This can be caused by paying interest on deposits, indexing money, or “dollarizing.” Results indicate that financial innovation raises welfare in low inflation economies while reducing it in high inflation economies, due to the offsetting indirect effect of higher inflation to finance the budget.
Download or read book On the Welfare Cost of Inflation and the Recent Behavior of Money Demand written by Peter Nathan Ireland and published by . This book was released on 2008 with total page 17 pages. Available in PDF, EPUB and Kindle. Book excerpt: "Post-1980 U.S. data trace out a stable long-run money demand relationship of Cagan's semi-log form between the M1-income ratio and the nominal interest rate, with an interest semi-elasticity below 2. Integrating under this money demand curve yields estimates of the welfare costs of modest departures from Friedman's zero nominal interest rate rule for the optimum quantity of money that are quite small. The results suggest that the Federal Reserve's current policy, which generates low but still positive rates of inflation, provides an adequate approximation in welfare terms to the alternative of moving all the way to the Friedman rule"--National Bureau of Economic Research web site
Download or read book On the Welfare Cost of Inflation written by Robert E. Lucas (Jr) and published by . This book was released on 1994 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book A Transitional Analysis of the Welfare Cost of Inflation written by Clark A. Burdick and published by . This book was released on 1997 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book A Time varying Approach of the US Welfare Cost of Inflation written by Stephen M. Miller and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Welfare Cost of Inflation written by Smithin, John Nicholas and published by Calgary : Department of Economics, University of Calgary. This book was released on 1982 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Welfare Cost of Permanent Inflation and Optimal Short run Economic Policy written by Martin Feldstein and published by . This book was released on 1977 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: At a minimum, this paper should serve as a warning against too easy an acceptance of the view that the costs of sustained inflation are small relative to the costs of unemployment. If a temporary reduction in unemployment causes a permanent increase in inflation, the present value of the resulting future welfare costs may well exceed the temporary short-run gain. Previous analyses have underestimated the cost of a permanent increase in the inflation rate because they have ignored the growth of the economy and therefore the growth of the future instantaneous welfare costs. In the important case in which the growth of aggregate income exceeds the social discount rate, no reduction in unemployment can justify any permanent increase in the rate of inflation. Quite the contrary, if the inflation rate is above its optimal level, the economy should then be deflated to reduce the inflation rate regardless of the temporary consequences for unemployment.
Download or read book An Evaluation of the Measures of the Welfare Cost of Inflation written by Robert Ware Hooper (Jr.) and published by . This book was released on 1999 with total page 276 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Inflation and Welfare written by Ben R. Craig and published by . This book was released on 2010 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper extends recent findings in the search-theoretic literature on monetary exchange regarding the welfare costs of inflation. We present first estimates of the welfare cost of inflation using the welfare triangle methodology of Bailey (1958) and Lucas (2000). We then derive a money demand function from the search-theoretic model of Lagos and Wright (2005) and we estimate it from U.S. data over the period 1900-2000. We show that the welfare cost of inflation predicted by the model accords with the welfare-triangle measure when pricing mechanisms are such that buyers appropriate the social marginal benefit of their real balances. For other mechanisms, welfare triangles underestimate the true welfare cost of inflation because of a rent-sharing externality. We also point out other inefficiencies associated with noncompetitive pricing, which matter for estimating the cost of inflation. We then illustrate how endogenous participation decisions can mitigate or exacerbate the cost of inflaion, and we provide calibrated examples in which a deviation from the Friedman rule is optimal. Finally, we discuss distributional effects of inflation.
Download or read book The Welfare Cost of Inflation with Banking Time written by Max Gillman and published by . This book was released on 2018 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper presents the welfare cost of inflation in a banking time economy that models exchange credit through a bank production approach. The estimate of welfare cost uses fundamental parameters of utility and production technologies. It is compared to a cash-only economy, and a Lucas (2000) shopping economy without leisure, as special cases. The paper estimates the welfare cost of a 10% inflation rate instead of zero, for comparison to other estimates, as well as the cost of a 2% inflation rate instead of a zero inflation rate. The zero rate is specified as the US inflation rate target in the 1978 Employment Act amendments. The paper provides a conservative welfare cost estimate of 2% inflation instead of zero at $33 billion a year. Estimates of the percent of government expenditure that can be financed through a 2% vs. zero inflation rate are also provided.
Download or read book The Costs and Benefits of Price Stability written by Martin Feldstein and published by University of Chicago Press. This book was released on 2007-12-01 with total page 374 pages. Available in PDF, EPUB and Kindle. Book excerpt: In recent years, the Federal Reserve and central banks worldwide have enjoyed remarkable success in their battle against inflation. The challenge now confronting the Fed and its counterparts is how to proceed in this newly benign economic environment: Should monetary policy seek to maintain a rate of low-level inflation or eliminate inflation altogether in an effort to attain full price stability? In a seminal article published in 1997, Martin Feldstein developed a framework for calculating the gains in economic welfare that might result from a move from a low level of inflation to full price stability. The present volume extends that analysis, focusing on the likely costs and benefits of achieving price stability not only in the United States, but in Germany, Spain, and the United Kingdom as well. The results show that even small changes in already low inflation rates can have a substantial impact on the economic performance of different countries, and that variations in national tax rules can affect the level of gain from disinflation.
Download or read book The Welfare Cost of Inflation and the Regulations of Money Substitutes written by and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Welfare Cost of Inflation in General Equilibrium written by Michael Dotsey and published by . This book was released on 1994 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Welfare Costs of Inflation written by Luca Benati and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We estimate the welfare costs of inflation originating from lack of liquidity satiation - as in Bailey (1956), Friedman (1969), Lucas (2000), and Ireland (2009) - for the U.S., U.K., Canada, and three countries/economic areas (Switzerland, Sweden, and the Euro area) in which interest rates have recently plunged below zero. We pay special attention to (i) the fact that, as shown by recent experience, zero cannot be taken as the effective lower bound (ELB); (ii) the possibility that, as discussed by Mulligan and Sala-i-Martin (2000), the money demand curve may become flatter at low interest rates; (iii) the functional form for money demand.; and (iv) what the most relevant proxy for the opportunity cost is. We report three main findings: (1) allowing for an empirically plausible ELB (e.g., -1%) materially increases the welfare costs compared to the standard benchmark of zero; (2) there is nearly no evidence that at low interest rates money demand curves may become flatter: rather, evidence for the U.S. (the country studied by Mulligan and Sala-i-Martin (2000)) clearly points towards a steeper curve at low rates; and (3) welfare costs are, in general, non-negligible: this is especially the case for the Euro area, Switzerland, and Sweden, which, for any level of interest rates, demand larger amounts of M1 as a fraction of GDP. For policy purposes the implication is that, ceteris paribus, inflation targets for these countries should be set at a comparatively lower level.
Download or read book Inflation and Welfare written by Hans-Werner Sinn and published by . This book was released on 1999 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt:
