The Welfare Cost of Inflation and the Regulations of Money Substitutes
This paper studies the possibility of using financial regulation that prohibits the use of money substitutes as a tool for mitigating the adverse effects of deviations from the Friedman rule. When inflation is not too high regulation aimed at elimi...
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| Format: | Working Paper |
| Language: | English en_US |
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World Bank, Washington, DC
2016
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| Online Access: | http://documents.worldbank.org/curated/en/2016/02/25861087/welfare-cost-inflation-regulations-money-substitutes http://hdl.handle.net/10986/23730 |
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okr-10986-237302021-04-23T14:04:17Z The Welfare Cost of Inflation and the Regulations of Money Substitutes Eden, Benjamin Eden, Maya MONETARY POLICY DEPOSIT HOLDING INCENTIVE DURABLE GOODS GOVERNMENT BANK MARKET STRUCTURE DEPOSITS PRODUCTION LAGS SUPPLY CURVE PRIVATE LENDING INCOME INTEREST RATE OF RETURN LIQUIDITY CRISES MARGINAL COST VELOCITY OF MONEY MONEY SUPPLY GOVERNMENT SPENDING SAVINGS ACCOUNTS INTEREST RATE PORTFOLIO CHOICE OPTION EXCHANGE GOVERNMENT REVENUES BANKING SYSTEM LIQUIDITY ELASTICITY REAL INTEREST POLITICAL ECONOMY REVENUES PORTFOLIO WELFARE BONDS DISTRIBUTION LOAN BUDGET CONSTRAINTS TAX INCOME TAX SOCIAL COST GOVERNMENT BOND RETURNS TO SCALE PAYMENTS RESERVE TRANSACTION COST INFLATION INTERNATIONAL BANK LENDER BUDGET OPTIMUM ECONOMIC ACTIVITY CHOICE LABOR MARKET SAVINGS DERIVATIVES DEMAND FOR MONEY COSTS SHORT-TERM BONDS MORAL HAZARD CHECKING ACCOUNT RESERVE BANK DOLLAR PRICE MONEY CONTRACTS LOW INTEREST RATES TAX REGIME CONSTANT RETURNS TO SCALE EXCHANGE RATES LIQUIDITY CONSTRAINTS PRODUCTIVITY OPTIONS INTEREST RATES DEPOSIT ACCOUNTS DEBT MARKETS RETURN INFLATION RATE PUBLIC FINANCE DEPOSIT INSURANCE OPEN ECONOMY BOND OPTION POTENTIAL OUTPUT LABOR LOANS TAX REVENUES REAL INTEREST RATE UTILITY INVENTORY RESERVE REQUIREMENT FINANCE TAXES SAVINGS ACCOUNT EXPENDITURE TRANSACTIONS RESOURCES MARKET ECONOMY CHECKING ACCOUNTS TRANSACTION CONSUMPTION RISK NEUTRAL BUDGET CONSTRAINT FEDERAL RESERVE INTEREST PAYMENTS PRIVATE BANK GOOD TAX RATE AGGREGATE SUPPLY GOVERNMENT BUDGET FEDERAL RESERVE BANK FINANCIAL CRISIS VALUE RETURNS NATIONAL DEBT CREDIT MACROECONOMICS PRIVATE BONDS DEMAND UTILITY FUNCTION INCOME DISTRIBUTION CONTRACT INEFFICIENCY EXPENDITURES CONSUMERS This paper studies the possibility of using financial regulation that prohibits the use of money substitutes as a tool for mitigating the adverse effects of deviations from the Friedman rule. When inflation is not too high regulation aimed at eliminating money substitutes improves welfare by economizing on transaction costs. The gains from regulation depend on the distribution of income and the level of direct taxation. The area under the demand for money curve is equal to the welfare cost of inflation only when there are no direct taxes and no proportional intermediation cost: otherwise, the area under the demand curve overstates the welfare cost of inflation when money substitutes are not important and understates the welfare cost when money substitutes are important. 2016-02-03T21:57:48Z 2016-02-03T21:57:48Z 2016-02 Working Paper http://documents.worldbank.org/curated/en/2016/02/25861087/welfare-cost-inflation-regulations-money-substitutes http://hdl.handle.net/10986/23730 English en_US Policy Research Working Paper;No. 7553 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English en_US |
| topic |
MONETARY POLICY DEPOSIT HOLDING INCENTIVE DURABLE GOODS GOVERNMENT BANK MARKET STRUCTURE DEPOSITS PRODUCTION LAGS SUPPLY CURVE PRIVATE LENDING INCOME INTEREST RATE OF RETURN LIQUIDITY CRISES MARGINAL COST VELOCITY OF MONEY MONEY SUPPLY GOVERNMENT SPENDING SAVINGS ACCOUNTS INTEREST RATE PORTFOLIO CHOICE OPTION EXCHANGE GOVERNMENT REVENUES BANKING SYSTEM LIQUIDITY ELASTICITY REAL INTEREST POLITICAL ECONOMY REVENUES PORTFOLIO WELFARE BONDS DISTRIBUTION LOAN BUDGET CONSTRAINTS TAX INCOME TAX SOCIAL COST GOVERNMENT BOND RETURNS TO SCALE PAYMENTS RESERVE TRANSACTION COST INFLATION INTERNATIONAL BANK LENDER BUDGET OPTIMUM ECONOMIC ACTIVITY CHOICE LABOR MARKET SAVINGS DERIVATIVES DEMAND FOR MONEY COSTS SHORT-TERM BONDS MORAL HAZARD CHECKING ACCOUNT RESERVE BANK DOLLAR PRICE MONEY CONTRACTS LOW INTEREST RATES TAX REGIME CONSTANT RETURNS TO SCALE EXCHANGE RATES LIQUIDITY CONSTRAINTS PRODUCTIVITY OPTIONS INTEREST RATES DEPOSIT ACCOUNTS DEBT MARKETS RETURN INFLATION RATE PUBLIC FINANCE DEPOSIT INSURANCE OPEN ECONOMY BOND OPTION POTENTIAL OUTPUT LABOR LOANS TAX REVENUES REAL INTEREST RATE UTILITY INVENTORY RESERVE REQUIREMENT FINANCE TAXES SAVINGS ACCOUNT EXPENDITURE TRANSACTIONS RESOURCES MARKET ECONOMY CHECKING ACCOUNTS TRANSACTION CONSUMPTION RISK NEUTRAL BUDGET CONSTRAINT FEDERAL RESERVE INTEREST PAYMENTS PRIVATE BANK GOOD TAX RATE AGGREGATE SUPPLY GOVERNMENT BUDGET FEDERAL RESERVE BANK FINANCIAL CRISIS VALUE RETURNS NATIONAL DEBT CREDIT MACROECONOMICS PRIVATE BONDS DEMAND UTILITY FUNCTION INCOME DISTRIBUTION CONTRACT INEFFICIENCY EXPENDITURES CONSUMERS |
| spellingShingle |
MONETARY POLICY DEPOSIT HOLDING INCENTIVE DURABLE GOODS GOVERNMENT BANK MARKET STRUCTURE DEPOSITS PRODUCTION LAGS SUPPLY CURVE PRIVATE LENDING INCOME INTEREST RATE OF RETURN LIQUIDITY CRISES MARGINAL COST VELOCITY OF MONEY MONEY SUPPLY GOVERNMENT SPENDING SAVINGS ACCOUNTS INTEREST RATE PORTFOLIO CHOICE OPTION EXCHANGE GOVERNMENT REVENUES BANKING SYSTEM LIQUIDITY ELASTICITY REAL INTEREST POLITICAL ECONOMY REVENUES PORTFOLIO WELFARE BONDS DISTRIBUTION LOAN BUDGET CONSTRAINTS TAX INCOME TAX SOCIAL COST GOVERNMENT BOND RETURNS TO SCALE PAYMENTS RESERVE TRANSACTION COST INFLATION INTERNATIONAL BANK LENDER BUDGET OPTIMUM ECONOMIC ACTIVITY CHOICE LABOR MARKET SAVINGS DERIVATIVES DEMAND FOR MONEY COSTS SHORT-TERM BONDS MORAL HAZARD CHECKING ACCOUNT RESERVE BANK DOLLAR PRICE MONEY CONTRACTS LOW INTEREST RATES TAX REGIME CONSTANT RETURNS TO SCALE EXCHANGE RATES LIQUIDITY CONSTRAINTS PRODUCTIVITY OPTIONS INTEREST RATES DEPOSIT ACCOUNTS DEBT MARKETS RETURN INFLATION RATE PUBLIC FINANCE DEPOSIT INSURANCE OPEN ECONOMY BOND OPTION POTENTIAL OUTPUT LABOR LOANS TAX REVENUES REAL INTEREST RATE UTILITY INVENTORY RESERVE REQUIREMENT FINANCE TAXES SAVINGS ACCOUNT EXPENDITURE TRANSACTIONS RESOURCES MARKET ECONOMY CHECKING ACCOUNTS TRANSACTION CONSUMPTION RISK NEUTRAL BUDGET CONSTRAINT FEDERAL RESERVE INTEREST PAYMENTS PRIVATE BANK GOOD TAX RATE AGGREGATE SUPPLY GOVERNMENT BUDGET FEDERAL RESERVE BANK FINANCIAL CRISIS VALUE RETURNS NATIONAL DEBT CREDIT MACROECONOMICS PRIVATE BONDS DEMAND UTILITY FUNCTION INCOME DISTRIBUTION CONTRACT INEFFICIENCY EXPENDITURES CONSUMERS Eden, Benjamin Eden, Maya The Welfare Cost of Inflation and the Regulations of Money Substitutes |
| relation |
Policy Research Working Paper;No. 7553 |
| description |
This paper studies the possibility of
using financial regulation that prohibits the use of money
substitutes as a tool for mitigating the adverse effects of
deviations from the Friedman rule. When inflation is not too
high regulation aimed at eliminating money substitutes
improves welfare by economizing on transaction costs. The
gains from regulation depend on the distribution of income
and the level of direct taxation. The area under the demand
for money curve is equal to the welfare cost of inflation
only when there are no direct taxes and no proportional
intermediation cost: otherwise, the area under the demand
curve overstates the welfare cost of inflation when money
substitutes are not important and understates the welfare
cost when money substitutes are important. |
| format |
Working Paper |
| author |
Eden, Benjamin Eden, Maya |
| author_facet |
Eden, Benjamin Eden, Maya |
| author_sort |
Eden, Benjamin |
| title |
The Welfare Cost of Inflation and the Regulations of Money Substitutes |
| title_short |
The Welfare Cost of Inflation and the Regulations of Money Substitutes |
| title_full |
The Welfare Cost of Inflation and the Regulations of Money Substitutes |
| title_fullStr |
The Welfare Cost of Inflation and the Regulations of Money Substitutes |
| title_full_unstemmed |
The Welfare Cost of Inflation and the Regulations of Money Substitutes |
| title_sort |
welfare cost of inflation and the regulations of money substitutes |
| publisher |
World Bank, Washington, DC |
| publishDate |
2016 |
| url |
http://documents.worldbank.org/curated/en/2016/02/25861087/welfare-cost-inflation-regulations-money-substitutes http://hdl.handle.net/10986/23730 |
| _version_ |
1764454654819696640 |