Home
About
Aims and Scope
Editorial Board
Submit
Archive
Search
|
Journal of Economic Theory and Econometrics
Journal of the Korean Econometric Society
Composition of Portfolio and Cost of Inflation
Vol.25, No.4, December 2014, 1–21
|
|
Manjong Lee
(Department of Economics, Korea University)
Sung Guan Yun
(Payment and Settlement Systems Department, Bank of Korea)
|
|
|
|
Abstract
The welfare cost of inflation is explored via a search-theoretic model in which along with non-interest-bearing cash, interest-bearing liquid and illiquid assets are available. With inflation, agents are willing to replace higher-return illiquid assets with lower-return liquid assets for consumption purchases. The opportunity cost incurred by this adjustment turns out to have quantitatively significant implications on the cost of inflation. A parameterized version of the model suggests that the cost of 10% inflation with liquid and illiquid interest-bearing assets is almost 3 times larger than that in a cash-only model. This implies that most existing measures of inflation cost with narrow money are substantially underestimated.
|
Keywords
cash, narrow money, broad money, portfolio shift, inflation cost |
JEL classification codes
E31, E40, E50 |
|
Links
KCI
KES
SCOPUS
MathJax
|