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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.