Abstract
This paper computes the welfare gains from inflation reduction in an estimated dynamic stochastic general equilibrium model of the U.S. economy. Both steady state and transitional welfare results are reported. I find important steady state welfare gains from a 10 percentage points drop in inflation. Under some circumstances, the transitional losses can erase most of the steady state welfare gains. The role of nominal frictions such as price/wage sluggishness is also explored.
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