Shoe-Leather Costs of Inflation and Policy Credibility

Principal Investigator(s): Pakko, Michael R., Federal Reserve Bank of St. Louis

Summary: Inflation can cause costly misallocations of resources as consumers seek to protect the purchasing power of their nominal assets. This research deals with the nature of these distortions, known as "shoe-leather costs," in a model where the demand for money is motivated by a shopping-time constraint. While the estimates of the shoe-leather costs of long-run inflation (implied by this model) are generally consistent with previous studies, the research shows that the transition bet... (more info)

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Pakko, Michael R. Shoe-Leather Costs of Inflation and Policy Credibility. ICPSR01197-v1. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 1999-04-30. doi:10.3886/ICPSR01197.v1

Persistent URL: http://dx.doi.org/10.3886/ICPSR01197.v1

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Summary: Inflation can cause costly misallocations of resources as consumers seek to protect the purchasing power of their nominal assets. This research deals with the nature of these distortions, known as "shoe-leather costs," in a model where the demand for money is motivated by a shopping-time constraint. While the estimates of the shoe-leather costs of long-run inflation (implied by this model) are generally consistent with previous studies, the research shows that the transition between inflation rates can involve dynamics that alter the nature of these welfare effects. Specifically, the benefits of a disinflation policy are mitigated by the gradual adjustment of the economy in response to a lower inflation rate. This transition can be particularly protracted when there is uncertainty about the credibility of the disinflation policy.

Subject Terms: consumers, inflation, inflation rates

Geographic Coverage: United States

Data Collection Notes:

(1) The file submitted is the data file 9811MP.DAT. (2) These data are part of ICPSR's Publication-Related Archive and are distributed exactly as they arrived from the data depositor. ICPSR has not checked or processed this material. Users should consult the investigator(s) if further information is desired.

Original ICPSR Release: 1999-04-30

1998

Pakko, Michael R. Shoe-leather costs of inflation and policy credibility. Federal Reserve Bank of St. Louis Review. 80, (6), 37-50.

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