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Zero Inflation: Transition Costs And Shoe Leather Benefits

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  • CHARLES T. Carlstrom
  • WILLIAM T. Gavin

Abstract

The idea that the monetary authority cannot achieve price stability except at the cost of a recession is the most common and convincing argument against price stability. This paper presents calculations showing that the resource costs of a recession that might result from eliminating a 4 percent inflation are approximately equal to the “shoe leather” costs incurred when inflation is stable at 4 percent.

Suggested Citation

  • CHARLES T. Carlstrom & WILLIAM T. Gavin, 1993. "Zero Inflation: Transition Costs And Shoe Leather Benefits," Contemporary Economic Policy, Western Economic Association International, vol. 11(1), pages 9-17, January.
    • Handle: RePEc:bla:coecpo:v:11:y:1993:i:1:p:9-17
    DOI: 10.1111/j.1465-7287.1993.tb00367.x
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    Cited by:

    1. David E. Altig, 1992. "An ebbing tide lowers all boats: monetary policy, inflation, and social justice," Economic Review, Federal Reserve Bank of Cleveland, vol. 28(Q II), pages 14-22.
    2. Michael R. Pakko, 1998. "Shoe-leather costs of inflation and policy credibility," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 37-50.
    3. Christopher Ragan, 1998. "On the Believable Benefits of Low Inflation," Staff Working Papers 98-15, Bank of Canada.
    4. Dotsey, Michael & Ireland, Peter, 1996. "The welfare cost of inflation in general equilibrium," Journal of Monetary Economics, Elsevier, vol. 37(1), pages 29-47, February.
    5. Brian O'Reilly, 1998. "The Benefits of Low Inflation: Taking Shock "A nickel ain't worth a dime any more" [Yogi Berra]," Technical Reports 83, Bank of Canada.
    6. Max Gillman, 1995. "Comparing Partial And General Equilibrium Estimates Of The Welfare Cost Of Inflation," Contemporary Economic Policy, Western Economic Association International, vol. 13(4), pages 60-71, October.

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