Abstract

http://ssrn.com/abstract=5779
 
 

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The Welfare Cost of Inflation in General Equilibrium


Michael Dotsey


Federal Reserve Bank of Philadelphia

Peter N. Ireland


Boston College - Department of Economics; National Bureau of Economic Research (NBER)

March 1994


Abstract:     
This paper presents a general equilibrium monetary model in which inflation distorts a variety of marginal decisions. Although individually none of the distortions is very large, they combine to yield substantial welfare cost estimates. A sustained 4 percent inflation like that experienced in the US since 1983 costs the economy the equivalent of 0.41 percent of output per year when currency is identified as the relevant definition of money and over 1 percent of output per year when M1 is defined as money. The results illustrate how the traditional, partial equilibrium approach can seriously underestimate the true cost of inflation.

JEL Classification: E31

working papers series


Not Available For Download

Date posted: October 2, 1999  

Suggested Citation

Dotsey, Michael and Ireland, Peter N., The Welfare Cost of Inflation in General Equilibrium (March 1994). Available at SSRN: http://ssrn.com/abstract=5779

Contact Information

Michael Dotsey (Contact Author)
Federal Reserve Bank of Philadelphia ( email )
Ten Independence Mall
Philadelphia, PA 19106-1574
United States
804-697-8201 (Phone)
804-697-8255 (Fax)
Peter N. Ireland
Boston College - Department of Economics ( email )
140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States
617-552-3687 (Phone)
617-552-2308 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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