English, Article, Journal or magazine article edition: On the Welfare Cost of Inflation and the Recent Behavior of Money Demand Peter N. Ireland

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Bookmark: http://trove.nla.gov.au/version/73974
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • On the Welfare Cost of Inflation and the Recent Behavior of Money Demand
Author
  • Peter N. Ireland
Physical Description
  • preprint
Notes
  • Post-1980 U.S. data trace out a stable long-run money demand relationship of Cagan's semi-log form between the M1-income ratio and the nominal interest rate, with an interest semi-elasticity below 2. Integrating under this money demand curve yields estimates of the welfare costs of modest departures from Friedman's zero nominal interest rate rule for the optimum quantity of money that are quite small. The results suggest that the Federal Reserve's current policy, which generates low but still positive rates of inflation, provides an adequate approximation in welfare terms to the alternative of moving all the way to the Friedman rule.
  • RePEc:nbr:nberwo:14098
  • Post-1980 U.S. data trace out a stable long-run money demand relationship of Cagan's semi-log form between the M1-income ratio and the nominal interest rate, with an interest semi-elasticity of 1.79. Integrating under this money demand curve yields estimates of the welfare cost of modest departures from Friedman's zero nominal interest rate rule for the optimum quantity of money that are quite small. The results suggest that the Federal Reserve's current policy, which generates low but still positive rates of inflation, provides an adequate approximation in welfare terms to the alternative of moving all the way to the Friedman rule.
  • inflation, welfare cost, money demand, Friedman rule
  • RePEc:boc:bocoec:662
Language
  • English
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