Bailey's measure of the welfare costs of inflation as a general-equilibrium measure
Lucas (2000) has shown that Bailey’s formula for the welfare costs of inflation can be regarded as an approximation to the general-equilibrium measures that emerge from the Sidrauski and the shopping-time models. In this paper we show that Bailey’s measure can be exactly obtained in the Sidrauski ge...
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| Format: | article |
| Status: | Published version |
| Publication Date: | 2017 |
| Country: | Brasil |
| Institution: | Fundação Getulio Vargas (FGV) |
| Repository: | Repositório Institucional do FGV (FGV Repositório Digital) |
| Language: | English |
| OAI Identifier: | oai:repositorio.fgv.br:10438/19310 |
| Online Access: | http://hdl.handle.net/10438/19310 |
| Access Level: | Open access |
| Keyword: | Inflation Welfare Partial equilibrium General equilibrium Bailey Economia Inflação Equilíbrio econômico |
| Summary: | Lucas (2000) has shown that Bailey’s formula for the welfare costs of inflation can be regarded as an approximation to the general-equilibrium measures that emerge from the Sidrauski and the shopping-time models. In this paper we show that Bailey’s measure can be exactly obtained in the Sidrauski general-equilibrium framework under the assumption of quasilinear preferences. The result, based on whether or not wealth effects are incorporated into the analysis, is also helpful in clarifying why Lucas’ measure derived from the Sidrauski model turns out to be an upper bound to Bailey’s. Two examples are used to illustrate the main conclusions. |
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