%0 Report
        %A Janiak, Alexandre
%A Monteiro, Paulo Santos
        %T Inflation and Welfare in Long-Run Equilibrium with Firm Dynamics
        %D 2009
        %8 2009 Nov
        %I Institute of Labor Economics (IZA)
        %C Bonn
        %7 IZA Discussion Paper
        %N 4559
        %U https://www.iza.org/publications/dp4559
        %X We analyze the welfare cost of inflation in a model with cash-in-advance constraints and an endogenous distribution of establishments' productivities. Inflation distorts aggregate productivity through firm entry dynamics. The model is calibrated to the United States economy and the long-run equilibrium properties are compared at low and high inflation. We find that, when the period over which the cash-in-advance constraint is binding is one quarter, an annual inflation rate of 10 percent leads to a decrease in the steady-state average productivity of roughly 0.5 percent compared to the optimum's steady-state. This decrease in productivity is not innocuous: it leads to a doubling of the welfare cost of inflation.
        %K inflation
%K productivity
%K firm dynamics
%K welfare