Citation

Discussion Paper Details

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Full Details

Title: Inflation and Welfare: Comment on Robert Lucas

Author(s): Hans-Werner Sinn

Publication Date: March 1999

Keyword(s): cost of inflation and Inflation

Programme Area(s): International Macroeconomics and Public Economics

Abstract: The paper argues that Lucas overestimates the Friedman-Bailey type of welfare cost of inflation and neglects other important welfare effects. With an alternative interpretation of the non-observability of low interest rates than the one Lucas gave and the introduction of taxes that reduce the opportunity cost of money holding, the welfare cost shrinks to one third of Lucas' estimate. The neglected welfare effects of inflation include an adverse Baumol-Tobin effect on growth and international capital movements, historical cost accounting for tax purposes, uncertainty about the price level and the relationship between inflation, relative prices and structural change.

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Bibliographic Reference

Sinn, H. 1999. 'Inflation and Welfare: Comment on Robert Lucas'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=2111