Divisia Indexes, Money and Welfare

34 Pages Posted: 7 Feb 2014

See all articles by Rubens Penha Cysne

Rubens Penha Cysne

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

Date Written: August 1, 2000

Abstract

We suggest the use of a particular Divisia index for measuring welfare losses due to interest rate wedges and inflation. Compared to the existing options in the literature: i) when the demands for the monetary assets are known, closed-form solutions for the welfare measures can be obtained at a relatively lower algebraic cost; ii) less demanding integrability conditions allow for the recovery of welfare measures from a larger class of demand systems and; iii) when the demand specifications are not known, using an index number entitles the researcher to rank different vectors of opportunity costs directly from market observations. We use two examples to illustrate the method.

Keywords: Divisia index, inflation, welfare, money

JEL Classification: E40, D60

Suggested Citation

Cysne, Rubens Penha, Divisia Indexes, Money and Welfare (August 1, 2000). Available at SSRN: https://ssrn.com/abstract=2392305 or http://dx.doi.org/10.2139/ssrn.2392305

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)

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