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Coexistence and welfare cost of inflation
- Authors
- Lee, Manjong
- Issue Date
- 6월-2013
- Publisher
- ELSEVIER
- Keywords
- Coexistence; Interest-bearing liquid asset; Welfare cost
- Citation
- JOURNAL OF MACROECONOMICS, v.36, pp.23 - 32
- Indexed
- SSCI
SCOPUS
- Journal Title
- JOURNAL OF MACROECONOMICS
- Volume
- 36
- Start Page
- 23
- End Page
- 32
- ISSN
- 0164-0704
- Abstract
- The welfare cost of inflation is studied with a model in which non-interest-bearing money coexists with an interest-bearing liquid asset. Compared to a money-only model, the presence of an interest-bearing liquid asset reduces the consumption distortion of inflation. However, it also induces the deadweight losses associated with intermediary cost and foregone return. Our result shows that the positive effect of the former is dominated by the negative effect of the latter, which suggests that existing measures of inflation cost with a money-only model would most likely be underrated. (C) 2013 Elsevier Inc. All rights reserved.
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