Durable Goods and Welfare Cost of Inflation
碩士 === 國立臺灣大學 === 經濟學研究所 === 97 === We study how durable goods affect the welfare cost of inflation in a Real Business Cycle model with cash-in-advance constraint. We modify the model of Cooley and Hansen (1989) to introduce consumption of durable goods into the model. We find that consumption of du...
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| Format: | Others |
| Language: | en_US |
| Published: |
2009
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| Online Access: | http://ndltd.ncl.edu.tw/handle/56186500278370676031 |
| Summary: | 碩士 === 國立臺灣大學 === 經濟學研究所 === 97 === We study how durable goods affect the welfare cost of inflation in a Real Business Cycle model with cash-in-advance constraint. We modify the model of Cooley and Hansen (1989) to introduce consumption of durable goods into the model. We find that consumption of durable goods
does not affect the welfare cost of inflation in the benchmark model with infinite Frisch labor supply elasticity. However, for more empirically plausible Frisch labor supply elasticity, there could be welfare gain from inflation as higher inflation induces the representative household to accumulate more durable goods. Higher consumption of durable goods can compensate for the
decline in consumption of nondurable goods and even lead to a higher welfare. Our results suggest that modest inflation can be beneficial to the overall economy in long run when durable goods are taken into consideration.
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