The Welfare Cost of Inflation in OECD Countries

46 Pages Posted: 23 Dec 2014

See all articles by Paola Boel

Paola Boel

Sveriges Riksbank - Research Division

Gabriele Camera

Chapman University - Economic Science Institute; University of Bologna - Dept. of Economics

Date Written: December 22, 2014

Abstract

The welfare cost of anticipated inflation is quantified in a matching model of money calibrated to twenty-three different OECD countries for several sample periods. In most economies, given the common period 1978-1998, a representative agent would give up only a fraction of 1% of consumption to avoid 10% inflation. The welfare cost of inflation varies across countries, from a fraction of 0.1% in Japan, to more than 2% in Australia, reaching 6% with bargaining. The model fits poorly money demand data of several countries, however. The fit generally improves with longer sample periods. The results are fairly robust to variations in choice of calibrated parameters and calibration targets.

Keywords: Money, Friedman rule, Trade Frictions

JEL Classification: E4, E5

Suggested Citation

Boel, Paola and Camera, Gabriele, The Welfare Cost of Inflation in OECD Countries (December 22, 2014). Available at SSRN: https://ssrn.com/abstract=2541996 or http://dx.doi.org/10.2139/ssrn.2541996

Paola Boel

Sveriges Riksbank - Research Division ( email )

S-103 37 Stockholm
Sweden

Gabriele Camera (Contact Author)

Chapman University - Economic Science Institute ( email )

Orange, CA 92866
United States

HOME PAGE: http://www1.chapman.edu/~camera/

University of Bologna - Dept. of Economics ( email )

Strada Maggiore 45
Bologna, 40125
Italy

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