An Ordering of Measures of the Welfare Cost of Inflation in Economies with Interest-Bearing Deposits

41 Pages Posted: 31 Jan 2014

See all articles by Rubens Penha Cysne

Rubens Penha Cysne

Getulio Vargas Foundation (FGV) - FGV/EPGE Escola Brasileira de Economia e Finanças

David Turchick

Department of Economics, University of São Paulo (FEA-USP)

Date Written: December 3, 2007

Abstract

This paper builds on Lucas (2000) and on Cysne (2003) to derive and order six alternative measures of the welfare costs of inflation (five of which already existing in the literature) for any vector of opportunity costs. The ordering of the functions is carried out for economies with or without interestbearing deposits. We provide examples and closed-form solutions for the log-log money demand both in the unidimensional and in the multidimensional setting (when interest-bearing monies are present). An estimate of the maximum relative error a researcher can incur when using any particular measure is also provided.

Keywords: Welfare, Interest-Bearing Assets, Money Demand, Divisia Index

JEL Classification: C0, E40

Suggested Citation

Cysne, Rubens Penha and Turchick, David, An Ordering of Measures of the Welfare Cost of Inflation in Economies with Interest-Bearing Deposits (December 3, 2007). Macroeconomic Dynamics, Vol. 16, No. 05, 2012. Available at SSRN: https://ssrn.com/abstract=2388125

Rubens Penha Cysne (Contact Author)

Getulio Vargas Foundation (FGV) - FGV/EPGE Escola Brasileira de Economia e Finanças ( email )

Praia de Botafogo 190/1125, CEP
Rio de Janeiro RJ 22253-900
Brazil
+55-21-552-5099 (Phone)
+55-21-536-9409 (Fax)

David Turchick

Department of Economics, University of São Paulo (FEA-USP) ( email )

Av. Prof. Luciano Gualberto 908
Sao Paulo SP, 05508-900
Brazil

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