Inflation and Social Welfare in a Model With Endogenous Financial Adaptation / Federico Sturzenegger.

Format:

Book

Author/Creator:

Sturzenegger, Federico.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w4103.

NBER working paper series no. w4103

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1992.

Summary:

This paper develops a model with endogenous financial adaptation. With a representative agent, inflation and welfare increase upon introduction of financial adaptation. Once we allow for agents' heterogeneity, we can show that inflation still increases and that the "poor" are hurt, while the "rich" benefit from the process of financial adaptation. Finally, we consider the optimal level of seigniorage collection. With a representative agent, financial adaptation increases both the optimal level of government spending and the inflation rate. With heterogeneous agents, if the government cares for the low income group, the optimal amount of government spending falls even though the rate of inflation increases. The model accounts for many stylized facts of high inflation economies and explains the incentives behind many policy actions.

Notes:

Print version record

June 1992.