Shoe-Leather Costs Reconsidered
Bank of England Working Paper No. 86
36 Pages Posted: 18 Jan 1999
Date Written: 1998
It has recently been suggested by Robert Lucas that "shoe-leather" costs of inflation may amount to as much as 1% of GNP in the United States. This paper assesses the U.K. evidence for the period 1970-1994. Similar estimates to those of Lucas are found using his original specification, but a preferred functional form using a semi-log interest elasticity of demand for money reveals a 0.22 % of GNP gain in perpetuity following a sustained fall in nominal interest rates from 6% to 2%.
JEL Classification: E31, E41, E43
Suggested Citation: Suggested Citation