NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Inflation, Monetary Velocity, and Welfare

Paul R. Krugman, Torsten Persson, Lars E.O. Svensson

NBER Working Paper No. 987
Issued in September 1982
NBER Program(s):   EFG

This paper develops a simple general equilibrium model of a monetary economy with a capital market, in which monetary demand arises from a "cash-in-advance" constraint rather than from any direct role in the utility function. Uncertainty gives rise to a meaningful portfolio choice between money and bonds. We show that monetary velocity is increasing in the rate of inflation, and that the optimal monetary policy is that which maximizes real balances. We also show that the real rate of interest is not invariant to monetary policy: inflation lowers the real rate.

download in pdf format
   (237 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w0987

Published: Krugman, Paul, Torsten Persson and Lars E.O. Svensson. "Inflation, Interest Rates, and Welfare," Quarterly Journal of Economics, Vol. 100, 1985, pp. 6 77-695.

Users who downloaded this paper also downloaded these:
Krugman w5473 Domestic Distortions and the Deindustrialization Hypothesis
Lindberg, Svensson, and Soderlind w3918 Devaluation Expectations: The Swedish Krona 1982-1991
Krugman w0356 International Trade and Income Distribution: A Reconsideration
Krugman w0554 Oil and the Dollar
Krugman w0333 Vehicle Currencies And the Structure Of International Exchange
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us