Working Paper: CEPR ID: DP293
Authors: John Driffill; Grayham Mizon; Alastair Ulph
Abstract: We review theoretical and empirical analyses of the costs of inflation. Part 2 of the paper examines microeconomic models in which inflation is perfectly anticipated, and viewed as the only distortion in the economy or as one of many distortionary taxes, which may or may not be chosen optimally. Part 3 turns to stochastic models with a more macroeconomic orientation, in which inflation is imperfectly perceived, or where real costs of price adjustment cause agents not to adjust fully in the presence of inflation. Part 4 discusses empirical work, which largely focuses on the relationship between the level of inflation, its variability, its unpredictability, and variation in relative prices.
Keywords: inflation; welfare; costs; relative price variability
JEL Codes: 134; 227
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Inflation (E31) | Economic Behavior (D22) |
| Inflation (E31) | Welfare Costs (D69) |
| Inflation (E31) | Transaction Costs (D23) |
| Inflation (E31) | Relative Price Variability (E30) |
| Relative Price Variability (E30) | Welfare Costs (D69) |
| Inflation (E31) | Uncertainty About Relative Prices (D89) |
| Uncertainty About Relative Prices (D89) | Time Spent Searching for Bargains (L81) |
| Time Spent Searching for Bargains (L81) | Welfare Costs (D69) |