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Architecture and Design
Arts
Asian and Pacific Studies
Business and Economics
Chemistry
Classical and Ancient Near Eastern Studies
Computer Sciences
Cultural Studies
Engineering
General Interest
Geosciences
History
Industrial Chemistry
Islamic and Middle Eastern Studies
Jewish Studies
Law
Library and Information Science, Book Studies
Life Sciences
Linguistics and Semiotics
Literary Studies
Materials Sciences
Mathematics
Medicine
Music
Pharmacy
Philosophy
Physics
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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.
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