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dc.contributor.authorChiu, Jonathanen_US
dc.contributor.authorMolico, Miguelen_US
dc.date.accessioned2011-12-15T12:58:36Z-
dc.date.available2011-12-15T12:58:36Z-
dc.date.issued2007en_US
dc.identifier.urihttp://hdl.handle.net/10419/53946-
dc.description.abstractThis paper studies the long run welfare costs of inflation in a micro-founded model with trading frictions and costly liquidity management. Agents face uninsurable idiosyncratic uncertainty regarding trading opportunities in a decentralized goods market and must pay a fixed cost to rebalance their liquidity holdings in a centralized liquidity market. By endogenizing the participation decision in the liquidity market, this model endogenizes the responses of velocity, output, the degree of market segmentation, as well as the distribution of money. We find that, compared to the traditional estimates based on a representative agent model, the welfare costs of inflation are significantly smaller due to distributional effects of inflation. The welfare cost of increasing inflation from 0% to 10% is 0.62% of income for the U.S. economy and 0.20% of income for the Canadian economy. Furthermore, the welfare cost is generally non-linear in the rate of inflation, depending on the endogenous responses of the liquidity market participation to inflation and liquidity management costs.en_US
dc.language.isoengen_US
dc.publisherBank of Canada Ottawaen_US
dc.relation.ispartofseriesBank of Canada Working Paper 2007,39en_US
dc.subject.jelE40en_US
dc.subject.jelE50en_US
dc.subject.ddc330en_US
dc.subject.keywordInflation: costs and benefitsen_US
dc.subject.stwInflationen_US
dc.subject.stwAußenhandelsbeschränkungen_US
dc.subject.stwBetriebliche Liquiditäten_US
dc.subject.stwVerteilungswirkungen_US
dc.subject.stwWohlfahrtseffekten_US
dc.subject.stwKanadaen_US
dc.subject.stwUSAen_US
dc.titleLiquidity, redistribution, and the welfare cost of inflationen_US
dc.typeWorking Paperen_US
dc.identifier.ppn548039763en_US
dc.rightshttp://www.econstor.eu/dspace/Nutzungsbedingungenen_US
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