Author: Mr.Howell H. Zee
Publisher: International Monetary Fund
Published: 1998-08-01
Total Pages: 22
ISBN-13: 1451853440
DOWNLOAD EBOOKThis paper provides general equilibrium estimates of the steady-state welfare gains of lowering inflation from a low level to close to price stability, using an overlapping-generations growth model. Money demand is modeled on the basis that real money balances are a factor of production. Assuming a standard Fisher equation modified by the presence of an income tax, it is found that inflation unambiguously reduces capital intensity, drives up the before-tax real rate of return to capital, and unambiguously imposes a life-time welfare cost. This welfare cost is, however, quantitatively very modest (under 0.2 percent of GDP annually) within reasonable ranges of all parameter values.
Book Synopsis Welfare Cost of (Low) Inflation by : Mr.Howell H. Zee
Download or read book Welfare Cost of (Low) Inflation written by Mr.Howell H. Zee and published by International Monetary Fund. This book was released on 1998-08-01 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper provides general equilibrium estimates of the steady-state welfare gains of lowering inflation from a low level to close to price stability, using an overlapping-generations growth model. Money demand is modeled on the basis that real money balances are a factor of production. Assuming a standard Fisher equation modified by the presence of an income tax, it is found that inflation unambiguously reduces capital intensity, drives up the before-tax real rate of return to capital, and unambiguously imposes a life-time welfare cost. This welfare cost is, however, quantitatively very modest (under 0.2 percent of GDP annually) within reasonable ranges of all parameter values.