On the Markov Switching Welfare Cost of Inflation

Forthcoming in: Journal of Economic Dynamics and Control

48 Pages Posted: 19 Sep 2019

See all articles by Wei Dai

Wei Dai

University of Calgary

Apostolos Serletis

University of Calgary - Department of Economics

Date Written: September 11, 2019

Abstract

This paper uses the Markov switching approach to account for instabilities in the long-run money demand function and compute the welfare cost of inflation in the United States. In doing so, it circumvents the problem of data-mining of some earlier seminal contributions on these issues, allowing for complicated nonlinear dynamics and sudden changes in the parameters of the money demand function. Moreover, it extends the sample period, and investigates the robustness of results to alternative money demand specifications, monetary aggregation procedures, and assumptions regarding dynamics aspects of the money demand specification.

Keywords: Welfare Cost of Inflation, Markov Regime Switching, Divisia Money

JEL Classification: C22, E41, E52

Suggested Citation

Dai, Wei and Serletis, Apostolos, On the Markov Switching Welfare Cost of Inflation (September 11, 2019). Forthcoming in: Journal of Economic Dynamics and Control. Available at SSRN: https://ssrn.com/abstract=3452204 or http://dx.doi.org/10.2139/ssrn.3452204

Wei Dai

University of Calgary ( email )

University Drive
Calgary, Alberta T2N 1N4
Canada

Apostolos Serletis (Contact Author)

University of Calgary - Department of Economics ( email )

2500 University Drive, NW
Calgary, Alberta T2N 1N4
Canada
403 220-4091 (Phone)
403 282-5262 (Fax)

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