The Welfare Cost of Inflation Revisited

Download or read book The Welfare Cost of Inflation Revisited written by and published by . This book was released on 2018 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: 'This paper calculates the welfare cost of inflation by focusing on distortions and costs that inflation poses on households who use money for transactions to avoid alternative means of payment and on the losses inflicted on the holders of public debt arising from unexpected inflation. In doing so, we take into account of the role of financial innovation that reduces over time the dependence of households on money to make transactions. We find a sizable aggregate welfare cost of money holdings, but lower than those found in previous studies. The difference mainly comes from the incorporation of financial innovation in our studies. Across households, the old and middle-aged and the poor face higher costs from inflation much more than the young and the rich. Costs are expected to be lower for future generations due to financial innovation'--Non-technical summary.