TY  - RPRT
        AU  - Janiak, Alexandre
AU  - Monteiro, Paulo Santos
        TI  - Inflation and Welfare in Long-Run Equilibrium with Firm Dynamics
        PY  - 2009/Nov/
        PB  - Institute of Labor Economics (IZA)
        CY  - Bonn
        T2  - IZA Discussion Paper
        IS  - 4559
        UR  - https://www.iza.org/publications/dp4559
        AB  - 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.
        KW  - inflation
KW  - productivity
KW  - firm dynamics
KW  - welfare
        ER  -