Commentary

James Bullard, Shouyong Shi

Research output: Chapter in Book/Report/Conference proceedingChapter

Abstract

THE CONVENTIONAL WISDOM OUTLINED BY LUCAS This fascinating paper by Rocheteau and Wright makes a contribution to the welfare cost of inflation literature. The authors use a version of the search-theoretic approach to monetary economics that emphasizes periodically centralized and decentralized markets. The centralized markets do not require the use of money, but agents may wish to hold money in order to facilitate exchange in the decentralized markets. Models in this class are known for highly stylized abstraction and typically emphasize purely theoretical findings. However, in this paper, the authors attempt a quantitative-theoretic assessment of the welfare cost of inflation under alternative price formation mechanisms. That they were able to do anything like this is what makes the paper fascinating. The authors make progress by following the approach that Robert Lucas used in his 2000 Econometrica article “Inflation and Welfare.” That model was also highly stylized, but Lucas was able to use available data over the past century to calibrate the model’s implied money demand. He then computed the welfare cost of inflation armed with the calibrated values for key parameters. Rocheteau and Wright use the same procedure and, in fact, keep the analysis completely comparable to Lucas by using nearly the same data and the same definition of a time period, which is one year.

Original languageEnglish (US)
Title of host publicationMonetary Policy in Low-Inflation Economies
PublisherCambridge University Press
Pages117-126
Number of pages10
ISBN (Electronic)9780511605475
ISBN (Print)9780521848503
DOIs
StatePublished - Jan 1 2009

Fingerprint

Welfare cost of inflation
Decentralized market
Money demand
Inflation
Wisdom
Monetary economics
Price formation

All Science Journal Classification (ASJC) codes

  • Economics, Econometrics and Finance(all)

Cite this

Bullard, J., & Shi, S. (2009). Commentary. In Monetary Policy in Low-Inflation Economies (pp. 117-126). Cambridge University Press. https://doi.org/10.1017/CBO9780511605475.009
Bullard, James ; Shi, Shouyong. / Commentary. Monetary Policy in Low-Inflation Economies. Cambridge University Press, 2009. pp. 117-126
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Bullard, J & Shi, S 2009, Commentary. in Monetary Policy in Low-Inflation Economies. Cambridge University Press, pp. 117-126. https://doi.org/10.1017/CBO9780511605475.009

Commentary. / Bullard, James; Shi, Shouyong.

Monetary Policy in Low-Inflation Economies. Cambridge University Press, 2009. p. 117-126.

Research output: Chapter in Book/Report/Conference proceedingChapter

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Bullard J, Shi S. Commentary. In Monetary Policy in Low-Inflation Economies. Cambridge University Press. 2009. p. 117-126 https://doi.org/10.1017/CBO9780511605475.009