TY  - JOUR
AU  - Sinn,Hans-Werner
TI  - Inflation and Welfare:  Comment on Robert Lucas
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6979
PY  - 1999
Y2  - February 1999
UR  - http://www.nber.org/papers/w6979
L1  - http://www.nber.org/papers/w6979.pdf
N1  - Author contact info:
Hans-Werner Sinn
Ifo Institute -
Leibniz Institute for Economic Research
at University of Munich
Poschingerstr. 5
81679 Munich
GERMANY
Tel: 49-89-21802748
Fax: 49-89-397303;49-89-8506434 (home)
E-Mail: sinn@ifo.de
AB  - The paper argues that Lucas overestimates the Friedman-Bailey type of welfare cost of inflation  and neglects other important welfare effects.  With an alternative interpretation of the non-observability of low interest rates than the one Lucas gave and the introduction of taxes that reduce the opportunity cost of money holding, the welfare cost shrinks to one third of Lucas' estimate.  The neglected welfare effects of inflation include an adverse Baumol-Tobin effect on growth and international capital movements, historical cost accounting for tax purposes, uncertainty about the price level and the relationship between inflation, relative prices and structural change.
ER  -