The Welfare Effects of Inflation: A Cost-Benefit Perspective

72 Pages Posted: 8 Jun 2016

See all articles by Karl-Heinz Tödter

Karl-Heinz Tödter

affiliation not provided to SSRN

Bernhard Manzke

Deutsche Bundesbank

Date Written: 2007

Abstract

This paper reviews theory and evidence of the welfare effects of inflation from a costbenefit perspective. Basic models and selected empirical results are discussed. Historically, in assessing the welfare effects of inflation, the distortion of money demand played a prominent role. More recently, interactions of inflation and taxation came into focus. Growth effects of inflation as well as welfare effects of unanticipated inflation and of inflation uncertainty are also addressed. To assess the policy question whether inflation should be reduced or eliminated, the costs of disinflation play a role. Finally, the trade-off between the benefits of reducing inflation and the costs of disinflation is discussed and an overall assessment of the net welfare effects of achieving price stability is provided.

Keywords: Inflation, price stability, welfare costs and benefits, distortions, money demand, consumption allocation, tax-inflation interaction

JEL Classification: E41, E31, H21, E21, D61

Suggested Citation

Tödter, Karl-Heinz and Manzke, Bernhard, The Welfare Effects of Inflation: A Cost-Benefit Perspective (2007). Bundesbank Series 1 Discussion Paper No. 2007,33, Available at SSRN: https://ssrn.com/abstract=2785177 or http://dx.doi.org/10.2139/ssrn.2785177

Karl-Heinz Tödter (Contact Author)

affiliation not provided to SSRN

No Address Available

Bernhard Manzke

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

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