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Dynamic shoe-leather costs in a shopping-time model of money

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  • Michael R. Pakko

Abstract

A general-equilibrium shopping-time model of money demand is used to obtain estimates of some dynamic costs of inflation under alternative monetary policy rules. After examining the welfare implications of steady-state inflation, dynamic welfare costs are evaluated for inflation-targeting and price-level targeting regimes in a stochastic setting in which agents are uncertain about the underlying inflation trend. The regimes are distinguished by the presence or absence of a unit root in the money supply and the price level. Uncertainty about the underlying inflation rate is introduced as a mechanism for modeling the role of policy credibility.

Suggested Citation

  • Michael R. Pakko, 1998. "Dynamic shoe-leather costs in a shopping-time model of money," Working Papers 1998-007, Federal Reserve Bank of St. Louis.
  • Handle: RePEc:fip:fedlwp:1998-007
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    References listed on IDEAS

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    Cited by:

    1. Michael R. Pakko, 1998. "Shoe-leather costs of inflation and policy credibility," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 37-50.
    2. Jonsson, Magnus & Palmqvist, Stefan, 2004. "Do Higher Wages Cause Inflation?," Working Paper Series 159, Sveriges Riksbank (Central Bank of Sweden).

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    Keywords

    Demand for money; Econometric models;

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