Abstract
I numerically study inflation’s welfare cost in a model in which there are two ways of mediating trade: money and information technology (IT), a probabilistically updated public record of agents’ histories. I find that a higher updating probability either brings the incentive-constrained output closer to its unconstrained value, or triggers the abandonment of money. In the first case the higher updating probability induces both higher inflation and a lower welfare cost of inflation. In the second case, welfare is higher than with the lower updating probability, but inflation’s welfare cost measured in a standard way is also higher.
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Cone, T.E. Information technology and the welfare cost of anticipated inflation. Comput Econ 30, 1–18 (2007). https://doi.org/10.1007/s10614-006-9076-9
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DOI: https://doi.org/10.1007/s10614-006-9076-9