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NATIONAL BUREAU OF ECONOMIC RESEARCH

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NBER Working Papers and Publications

January 1999Some Costs and Benefits of Price Stability in the United Kingdom
with Andrew Haldane, Neal Hatch
in The Costs and Benefits of Price Stability, Martin Feldstein, editor
July 1998Some Costs and Benefits of Price Stability in the United Kingdom
with Andrew G. Haldane, Neal Hatch: w6660
In a previous attempt to articulate the costs of inflation (Leigh-Pemberton (1992)), the Bank of England outlined the following costs of a fully-anticipated inflation: - the cost of economising on real money balances -- so-called shoe-leather' effects; - the costs of operating a less-than-perfectly indexed tax system; - the costs of front-end loading' of nominal debt contracts; - the cost of constantly revising price lists -- so called menu costs' Feldstein (1996) quantified the first two of these costs when moving from 2% inflation to price stability in the U.S. Feldstein concluded that the permanent welfare gains through these two channels -- suitably discounted -- alone exceeded the transient costs of doing so. This paper aims to replicate Feldstein's analysis for the U.K. Welfare eff...

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