American Economic Review Vol. 78 No. 4 1988
Costs of Price Adjustment and the Welfare Economics of Inflation and Disinflation
Abstract
[This paper studies the welfare consequences of inflation and disinflation in a model in which firms incur a fixed cost of price adjustment. It is shown that a moderately increasing price level is associated with higher social welfare than a perfectly stable price level, and the model therefore provides theoretical support for the widespread belief that a little bit of inflation is good for the economy. Nevertheless, it is also true that the eradication of a moderate inflation leads to an increase in social welfare.]
- Volume
- 78
- Issue
- 4
- Pages
- 633-646
- Sources
- bibtex:phds-export.bib