Currency substitution, inflation, and welfare

• 成果类型: Article
• 署名作者: Ozbilgin, H. Murat
• 署名单位: Prime Ministry Turkey
• 刊物名称: JOURNAL OF DEVELOPMENT ECONOMICS
• ISSN/ISSBN: 0304-3878
• DOI: 10.1016/j.jdeveco.2012.04.003
• 发表日期: 2012
• 页码: 358-369
• 关键词: inflation; welfare; Currency substitution; monetary policy

摘要

Currency substitution affects the mapping between social welfare and inflation by altering the underlying money demand function and influencing interest rates. In order to explore the essence of this effect, I build a model with working capital under which foreign currency is substituted with the less liquid components of domestic money. The framework closely mimics the actual pattern of currency substitution across varying rates of inflation and enables the study of an additional channel that works through the impact of currency substitution on interest rates. It is found that there is a threshold inflation rate, which turns out to be 44% under baseline calibration, below which currency substitution decreases welfare and vice versa. A practical implication is that, at inflation rates lower (greater) than the threshold, the potential welfare gains from disinflation to a near-zero inflation rate are higher (lower) if there is currency substitution than otherwise. (C) 2012 Elsevier B.V. All rights reserved.