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Inflation and welfare in long-run equilibrium with firm dynamics
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Janiak, Alexandre and Santos-Monteiro, Paulo (2009) Inflation and welfare in long-run equilibrium with firm dynamics. Working Paper. Coventry: University of Warwick, Department of Economics. Warwick economic research papers (No.910).
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Official URL: http://www2.warwick.ac.uk/fac/soc/economics/resear...
Abstract
We analyze the welfare cost of inflation in a model with cash-in-advance constraints and an endogenous distribution of establishments' productivities. Inflation distorts aggregate productivity through firm entry dynamics. The model is calibrated to the United States economy and the long-run equilibrium properties are compared at low and high inflation. We find that increasing the annual infiation rate by 10 percentage points above the average rate in the U.S. would result in a fall in average productivity of roughly 1.3 percent. This decrease in productivity is not innocuous : it is responsible for about one half of the welfare cost of inflation.
Item Type: | Working or Discussion Paper (Working Paper) | ||||
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Subjects: | H Social Sciences > HG Finance H Social Sciences > HB Economic Theory |
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Divisions: | Faculty of Social Sciences > Economics | ||||
Library of Congress Subject Headings (LCSH): | Welfare economics, Inflation (Finance) -- Mathematical models, Industrial productivity -- Effect of inflation on | ||||
Series Name: | Warwick economic research papers | ||||
Publisher: | University of Warwick, Department of Economics | ||||
Place of Publication: | Coventry | ||||
Official Date: | 15 June 2009 | ||||
Dates: |
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Number: | No.910 | ||||
Number of Pages: | 46 | ||||
Institution: | University of Warwick | ||||
Status: | Not Peer Reviewed | ||||
Access rights to Published version: | Open Access (Creative Commons) | ||||
Funder: | Fondo Nacional de Desarrollo Científico y Tecnológico (Chile) (FONDECYT) |
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