Year:
2006
Autor(s):
Rubens Penha Cysne
Serie number: 612
Abstract:
The literature on the welfare costs of in?ation universally assumes that the many-person household can be treated as a single economic agent. This paper explores what the heterogeneity of the agents in a household might imply for such welfare analyses. First, we show that allowing for a one-person or for a many-person transacting technology impacts the money demand function and, therefore, the welfare costs of in?ation. Second, more importantly, we derive su? cient conditions under which welfare assessments which depart directly from the knowledge of the money demand function (as in Lucas (2000)) are robust (invariant) under the number of persons considered in the household. Third, we show that Bailey?s (1956) partial-equilibrium measure of the welfare costs of in?ation can be obtained as a ?rst-order approximation of the general-equilibrium welfare measure derived in this paper using a many-person transacting technology.