Sectoral Money Demand Behaviour and the Welfare Cost of Inflation in the  UK | Zendy

Ashworth John | Zendy; Barlow David | Zendy; Evans Lynne | Zendy

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Sectoral Money Demand Behaviour and the Welfare Cost of Inflation in the UK

Author(s) -

Ashworth John,

Barlow David,

Evans Lynne

Publication year - 2014

Publication title -

the manchester school

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.361

H-Index - 42

eISSN - 1467-9957

pISSN - 1463-6786

DOI - 10.1111/manc.12047

Subject(s) - economics , welfare , inflation (cosmology) , aggregate (composite) , monetary economics , opportunity cost , econometrics , macroeconomics , microeconomics , market economy , physics , materials science , theoretical physics , composite material

In this paper, we estimate separate UK money demand functions for the household and corporate sectors; and calculate estimates of the welfare cost of inflation. We find that the household sector bears most of the welfare burden which is in sharp contrast to previous ( US ) evidence. Also, we find aggregate welfare cost estimates that are much smaller than previous (largely US ) estimates—sufficiently smaller as to challenge the oft‐quoted Lucas finding that shoe leather costs are by no means trivial. For the UK , we find welfare costs no greater than one tenth of a per cent of real income.

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