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Abstract

Estimates of the welfare costs of moderate inflation are generally modest or small. This paper, by shedding light on increasing returns to production specialization, obtains a substantial welfare cost of 8% in an endogenous growth model of monopolistic competition with endogenous entry. Analytically, we show that the effect of inflation is aggravated resp. alleviated by a price markup if the degree of increasing returns to production specialization is relatively high resp. low. Accordingly, our quantitative analysis indicates that the welfare cost of inflation exhibits an inverted U-shaped relationship with the price markup. This non-monotone is sharply in contradiction to the conventional notion. Nonetheless, the welfare cost of inflation is unambiguously increasing in the degree of increasing returns to production specialization.



Item Type: MPRA Paper -

Original Title: Welfare Cost of Inflation: The Role of Price Markups and Increasing Returns to Production Specialization-

Language: English-

Keywords: Welfare cost of inflation, price markup, increasing returns to production specialization.-

Subjects: E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and CreditE - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary PolicyO - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate ProductivityO - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O42 - Monetary Growth Models-





Autor: Chang, Juin-Jen

Fuente: https://mpra.ub.uni-muenchen.de/77753/



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