A time-varying approach of the US welfare cost of inflation

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dc.contributor.author Miller, Stephen M.
dc.contributor.author Martins, Luis Filipe
dc.contributor.author Gupta, Rangan
dc.date.accessioned 2019-05-28T11:40:42Z
dc.date.available 2019-05-28T11:40:42Z
dc.date.issued 2019-03
dc.description.abstract 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. en_ZA
dc.description.department Economics en_ZA
dc.description.librarian hj2019 en_ZA
dc.description.uri https://www.cambridge.org/core/journals/macroeconomic-dynamics en_ZA
dc.identifier.citation Miller, S.M., Martins, L.F. & Gupta, R. 2019, 'A time-varying approach of the US welfare cost of inflation', Macroeconomic Dynamics, vol. 23, no. 2, pp. 775-797. en_ZA
dc.identifier.issn 1365-1005 (print)
dc.identifier.issn 1469-8056 (online)
dc.identifier.other 10.1017/S1365100517000037
dc.identifier.uri http://hdl.handle.net/2263/69219
dc.language.iso en en_ZA
dc.publisher Cambridge University Press en_ZA
dc.rights © Cambridge University Press 2017 en_ZA
dc.subject Money demand en_ZA
dc.subject Curvature en_ZA
dc.subject Monetary policy en_ZA
dc.subject Cointegration en_ZA
dc.subject Endogenous growth (Economics) en_ZA
dc.subject United States (US) en_ZA
dc.subject Error correction en_ZA
dc.subject Welfare cost of inflation en_ZA
dc.subject Time-varying cointegration en_ZA
dc.title A time-varying approach of the US welfare cost of inflation en_ZA
dc.type Postprint Article en_ZA


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