Abstract
We integrate an overlapping generations structure into the standard Lagos and Wright (2005) framework and show that mild inflation can be welfare-improving. The reason behind this result is that inflation induces young agents to reduce their savings and to increase their consumption, which overpowers the utility loss of old agents. However, the beneficial effect disappears for higher inflation rates, such that the optimal inflation rate is one at an intermediate level.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.