On the welfare cost of inflation in Europe

Abstract

This article follows Lucas (2000 Lucas, RE Jr. 2000. Inflation and welfare. Econometrica, 68: 247–74. [Crossref], [Web of Science ®] , [Google Scholar]) and Serletis and Yavari (2005 Serletis, A and Yavari, K. 2005. The welfare cost of inflation in Italy. Applied Economics Letters, 12: 165–8. [Taylor & Francis Online] , [Google Scholar]) and estimates the welfare cost of inflation in the Euro zone. It uses recent advances in the field of applied econometrics to estimate the interest elasticity of money demand and reports that the welfare cost of inflation is lower in big countries than it is in small countries.