Monetary exchange and the irreducible cost of inflation

• 成果类型: Article
• 署名作者: Wong, Tsz-Nga
• 署名单位: Bank of Canada
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2016.02.008
• 发表日期: 2016
• 页码: 218-229
• 关键词: money; Cost of inflation; Trading mechanism

摘要

This paper applies a mechanism design approach to construct a lower bound to the welfare cost of inflation that does not depend on quasi-linear preferences or details of how agents trade. An incentive-feasible trading protocol is derived to minimize the welfare loss subject to frictions rendering money essential. The welfare cost of inflation under this optimal protocol is the lower bound over all pairwise trading protocols of monetary exchange. In general, the first-best is not implementable, even under the Friedman's rule, patient agents and the optimal mechanism. Thus, the lower bound depends on fundamentals like preferences and technology. Finally, I estimate the irreducible cost of 10% inflation with the U.S. data from 1900 to 2000. Crown Copyright (C) 2016 Published by Elsevier Inc. All rights reserved.