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Shoe-leather costs reconsidered

Author

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  • Jag Chadha
  • Andrew Haldane
  • Norbert Janssen

Abstract

It has recently been suggested by Robert Lucas that `shoe-leather' costs of inflation may amount to as much as 1% of GNP in the United States. This paper assesses the UK evidence for the period 1970-1994. Similar estimates to those of Lucas are found using his original specification, but a preferred functional form using a semi-log interest elasticity of demand for money reveals a 0.22 % of GNP gain in perpetuity following a sustained fall in nominal interest rates from 6% to 2%.

Suggested Citation

  • Jag Chadha & Andrew Haldane & Norbert Janssen, 1998. "Shoe-leather costs reconsidered," Bank of England working papers 86, Bank of England.
    • Handle: RePEc:boe:boeewp:86
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    References listed on IDEAS

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