Inflation and welfare in long-run equilibrium with firm dynamics
Janiak, Alexandre and Santos-Monteiro, Paulo. (2011) Inflation and welfare in long-run equilibrium with firm dynamics. Journal of Money, Credit & Banking, Vol.43 (No.5). pp. 795-834. ISSN 0022-2879
This is the latest version of this item.
Official URL: http://dx.doi.org/10.1111/j.1538-4616.2011.00398.x...
We analyze the welfare cost of inflation in a model with a cash-in-advance constraint and an endogenous distribution of establishments' productivities. Inflation distorts aggregate productivity through firm entry dynamics. The model is calibrated to the U. S. economy and the long-run equilibrium properties are compared at low and high inflation. When the period over which the cash-in-advance constraint is binding is one quarter, an annual inflation rate of 10% leads to a decrease in average productivity of roughly 0.5% compared to the optimum. This decrease is not innocuous: it leads to a doubling of the welfare cost of inflation.
|Item Type:||Journal Article|
|Subjects:||H Social Sciences > HG Finance
H Social Sciences > HB Economic Theory
|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|
|Journal or Publication Title:||Journal of Money, Credit & Banking|
|Publisher:||Wiley-Blackwell Publishing, Inc.|
|Place of Publication:||Coventry|
|Official Date:||15 August 2011|
|Number of Pages:||46|
|Page Range:||pp. 795-834|
|Access rights to Published version:||Open Access|
Available Versions of this Item
Inflation and welfare in long-run equilibrium with firm dynamics. (deposited 01 Sep 2009 10:11)
- Inflation and welfare in long-run equilibrium with firm dynamics. (deposited 21 Oct 2011 13:56) [Currently Displayed]
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