This article talks about Welfare Cost of Inflation. Federal Reserve’s well-established policy of low but positive inflation impose on the economy, when compared to the optimal monetary policy prescribed by Friedman (1969). These facts about price movements are a key input in recent quantitative models of the aggregate effects of nominal rigidities. Recent general-equilibrium models that estimate the welfare cost of inflation are Dotsey and Ireland (1996), Aiyagari, Braun, and Eckstein (1998), Burstein and Hellwig (2008), and Henriksen and Kydland (2010).
Welfare Cost of Inflation
