Working Paper

The Welfare Costs of Inflation

Abstract: We revisit the estimation of the welfare costs of inflation originating from lack of liquidity satiation. We use data for the United States and several other developed countries. Our computations are heavily influenced by the recent experience of very low, even negative, short-term rates observed in the countries we study. We obtain estimates that range between 0.20% and 1.5% of lifetime consumption for the United States and find even higher values for some European countries.

Keywords: Money demand; Lower bound on interest rates;

JEL Classification: E41; E43; E52;

https://doi.org/10.21034/wp.783

Bibliographic Information

Provider: Federal Reserve Bank of Minneapolis

Part of Series: Working Papers

Publication Date: 2021-09-24

Number: 783