scholarly journals A TIME-VARYING APPROACH OF THE US WELFARE COST OF INFLATION

2017 ◽  
Vol 23 (2) ◽  
pp. 775-797 ◽  
Author(s):  
Stephen M. Miller ◽  
Luis Filipe Martins ◽  
Rangan Gupta
Keyword(s):  
Money Demand ◽  
Inflation Rate ◽  
Income Elasticity ◽  
Welfare Cost ◽  
Time Varying ◽  
Sample Period ◽  
Welfare Cost Of Inflation ◽  
Us Economy ◽  
The Us ◽  
Invariant Estimation

Money-demand specifications exhibit instability, especially for long spans of data. This paper reconsiders the welfare cost of inflation for the US economy using a flexible time-varying (TV) cointegration methodology to estimate the money-demand function. We find evidence that the TV cointegration estimation provides a better fit of the actual data than a time-invariant estimation and that the throughout unitary income elasticity only exists for the log–log form over the entire sample period. Our estimate of the welfare cost of inflation for a 10% inflation rate lies in the range of 0.025–0.75% of gross domestic product (GDP) and averages 0.27%. In sum, our findings fall well within the ranges of existing studies of the welfare cost of inflation. We find that the welfare cost averages 7.4% higher during expansions than recessions for 10% inflation rate. Finally, the interest elasticity of money demand shows substantial variability over our sample period.

scholarly journals Welfare cost of inflation in Brazil: an approach with time-varying cointegration and Kalman filter

2019 ◽  
Vol 23 (1) ◽  
pp. 137-160
Author(s):  
Eduardo Lima Campos ◽  
Rubens Penha Cysne
Keyword(s):  
Kalman Filter ◽  
Interest Rate ◽  
Kalman Filtering ◽  
Money Demand ◽  
Welfare Cost ◽  
Time Variability ◽  
Time Varying ◽  
Welfare Cost Of Inflation ◽  
The Interest Rate

This paper compares the time-varying cointegration and the Kalman filter techniques to estimate the Brazilian money demand between 1996 and 2015. The estimation using Kalman filtering performs better and is subsequently used to calculate the welfare cost of inflation. Taking into consideration the time variability of the interest-rate elasticity during the period, the average welfare cost amounts to 0.24% of the GDP, for an average annual inflation of 6.63%.

scholarly journals A Time-Varying Approach of the US Welfare Cost of Inflation

2014 ◽  
Author(s):  
Stephen M. Miller ◽  
Luis Filipe Martins ◽  
Rangan Gupta
Keyword(s):  
Welfare Cost ◽  
Time Varying ◽  
Welfare Cost Of Inflation ◽  
The Us

scholarly journals The welfare cost of inflation with banking time

2018 ◽  
Vol 20 (1) ◽  
Author(s):  
Max Gillman
Keyword(s):  
Inflation Rate ◽  
Government Expenditure ◽  
Welfare Cost ◽  
Zero Inflation ◽  
Fundamental Parameters ◽  
Welfare Cost Of Inflation ◽  
Special Cases ◽  
Zero Rate ◽  
Production Technologies ◽  
The Cost

Abstract The paper presents the welfare cost of inflation in a banking time economy that models exchange credit through a bank production approach. The estimate of welfare cost uses fundamental parameters of utility and production technologies. It is compared to a cash-only economy, and a [Lucas, Robert Jr. E. 2000. “Inflation and Welfare.” Econometrica 68 (2): 247–274.] shopping economy without leisure, as special cases. The paper estimates the welfare cost of a 10% inflation rate instead of zero, for comparison to other estimates, as well as the cost of a 2% inflation rate instead of a zero inflation rate. A zero rate is statutorily specified as the US inflation rate target in the 1978 Employment Act amendments. The paper provides a conservative welfare cost estimate of 2% inflation instead of zero at $33 billion a year. Estimates of the percent of government expenditure that can be financed through a 2% vs. zero inflation rate are also provided.

scholarly journals Time-Varying Effects of Oil Supply Shocks on the US Economy

2013 ◽  
Vol 5 (4) ◽  
pp. 1-28 ◽  
Author(s):  
Christiane Baumeister ◽  
Gert Peersman
Keyword(s):  
Oil Price ◽  
Time Varying ◽  
Oil Supply ◽  
Us Economy ◽  
Supply Shocks ◽  
The Us ◽  
Short Run ◽  
Oil Demand ◽  
Substantial Decline ◽  
Oil Supply Shocks

Using time-varying BVARs, we find a substantial decline in the short-run price elasticity of oil demand since the mid-1980s. This finding helps explain why an oil production shortfall of the same magnitude is associated with a stronger response of oil prices and more severe macroeconomic consequences over time, while a similar oil price increase is associated with smaller output effects. Oil supply shocks also account for a smaller fraction of real oil price variability in more recent periods, in contrast to oil demand shocks. The overall effects of oil supply disruptions on the US economy have, however, been modest. (JEL E31, E32, Q41, Q43)

Optimal Inflation for the US Economy

2011 ◽  
Vol 3 (3) ◽  
pp. 29-52 ◽  
Author(s):  
Roberto M Billi
Keyword(s):  
Inflation Rate ◽  
Low Cost ◽  
Policy Instrument ◽  
New Keynesian ◽  
Worst Case ◽  
Us Economy ◽  
Keynesian Model ◽  
Long Run ◽  
The Us ◽  
The Government

This paper studies the optimal long-run inflation rate (OIR) in a small New Keynesian model, where the only policy instrument is a short-term nominal interest rate that may occasionally run against a zero lower bound (ZLB). The model allows for worst-case scenarios of misspecification. The analysis shows first, if the government optimally commits, the OIR is below 1 percent annually. Second, if the government re-optimizes each period, the OIR rises markedly to 17 percent. Third, if the government commits only to an inertial Taylor rule, the inflation bias is eliminated at very low cost in terms of welfare for the representative household. (JEL E12, E31, E43, E52, E58)

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