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AN ORDERING OF MEASURES OF THE WELFARE COST OF INFLATION IN ECONOMIES WITH INTEREST-BEARING DEPOSITS

Published online by Cambridge University Press:  03 February 2012

Rubens Penha Cysne  and
David Turchick
Rubens Penha Cysne*
Affiliation:
Graduate School of Economics of the Getulio Vargas Foundation
David Turchick
Affiliation:
Graduate School of Economics of the Getulio Vargas Foundation
*
Address correspondence to: Rubens Penha Cysne, Praia de Botafogo 190, 11° andar, Rio de Janeiro, RJ 22250-900, Brazil; e-mail: [email protected].
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Abstract

This paper builds on Lucas [Econometrica 68 (2000), 247–274] and on Cysne [Journal of Money, Credit and Banking 35 (2003), 221–238] to derive and order six alternative measures of the welfare costs of inflation (five of them already existing in the literature) for any vector of opportunity costs. We provide examples and closed-form solutions for each welfare measure based both on log–log and on semilog money demands, whenever possible in terms of elementary functions. Estimates of the maximum relative error a researcher can incur when using any of these measures are given. Everything is done for economies with or without interest-bearing deposits.

Keywords

InflationWelfareInterest-Bearing AssetsMoney DemandDivisia Index
Type
Articles
Information
Macroeconomic Dynamics , Volume 16 , Issue 5 , November 2012 , pp. 732 - 751
Copyright
Copyright © Cambridge University Press 2012

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References

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