Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153760
Authors: 
Calza, Alessandro
Zaghini, Andrea
Year of Publication: 
2011
Series/Report no.: 
ECB Working Paper 1326
Abstract: 
Empirical studies of the "shoe-leather" costs of inflation are typically computed using M1 as a measure of money. Yet, official data on M1 includes all currency issued, regardless of the country of residence of the holder. Using monetary data adjusted for US dollars abroad, we show that the failure to control for currency held by non residents may lead to significantly overestimating the shoe-leather costs for the domestic economy. In particular, our estimates of shoe-leather costs are minimized for a positive but moderate value of the inflation rate, thereby justifying a deviation from the Friedman rule in favour of the Fed's current policy.
Subjects: 
flow of funds data
US currency abroad
Welfare costs of inflation
JEL: 
E31
E41
E52
Document Type: 
Working Paper

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