A REVISION ON THE WELFARE COSTS OF INFLATION AND SEIGNIORAGE IN BRAZIL: A MODEL WITH LEISURE

Carlos Eduardo Gomes, Maria Helena Ambrosio Dias

Abstract


This is a revised version of DIAS (1993) on the implications of inflation for the social-welfare of the Brazilian economy. The theoretical model is the same with improvements in its estimations. We have a new data set that was able to correct some measurement errors we found in the earlier version. The analysis here is concerned with the welfare loss overall society has due to high inflation rates. The main focus of analysis start with the measurement of seigniorage. What happens to seigniorage at high inflation rates, and why might governments be tempted to over-inflate? The model presents a utility function with leisure depending on real money balances and consumption. The theoretical propositions are useful to study economies with high inflation rates.


Keywords


Brazilian economy; Welfare costs of inflation and seigniorage; Leisure

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Economic Analysis of Law Review  -  ISSN 2178-0587

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