Costs of inflation in Australia and New Zealand.

Dutu, Richard 2006, Costs of inflation in Australia and New Zealand., New Zealand economic papers, vol. 40, no. 2, pp. 127-147.

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Title Costs of inflation in Australia and New Zealand.
Author(s) Dutu, Richard
Journal name New Zealand economic papers
Volume number 40
Issue number 2
Start page 127
End page 147
Publisher New Zealand Association of Economists (Routledge)
Place of publication Wellington, N.Z.
Publication date 2006-12
ISSN 0077-9954
Summary This paper evaluates the costs of inflation in Australia and New Zealand using a compensated measure calculated by calibrating a general equilibrium search model in the vein of Lagos and Wright (2005). We look at how inflation affects the intensive margin (the quantity traded in each match) by examining the impact of various pricing protocols. We also look at how inflation affects the extensive margin (the number of trades) by making the market composition between buyers and sellers endogenous. We obtain much larger costs of inflation than existing studies, but smaller costs than similar studies conducted on the US economy. Depending on the version of the model the costs of 10% inflation for a $50,000 worker ranges from $250 to $2200 per year in Australia, and from $200 to $1700 in New Zealand, that is between 0.5% and 4.4% of GDP and between 0.4% and 3.4% of GDP respectively. Finally it is calculated that Australia could gain up to 1.6% of GDP per annum--1.2% for New Zealand--by implementing the Friedman rule.
Language eng
Field of Research 140212 Macroeconomics (incl Monetary and Fiscal Theory)
HERDC Research category C1.1 Refereed article in a scholarly journal
Copyright notice ©2006, New Zealand Association of Economists
Persistent URL http://hdl.handle.net/10536/DRO/DU:30016428

Document type: Journal Article
Collection: Deakin Graduate School of Business
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