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Costs of inflation in Australia and New Zealand.

Version 2 2024-06-17, 06:31
Version 1 2014-10-28, 08:30
journal contribution
posted on 2024-06-17, 06:31 authored by R Dutu
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.

History

Journal

New Zealand economic papers

Volume

40

Pagination

127-147

Location

Wellington, N.Z.

ISSN

0077-9954

Language

eng

Publication classification

C1.1 Refereed article in a scholarly journal

Copyright notice

2006, Taylor & Francis

Issue

2

Publisher

New Zealand Association of Economists (Routledge)

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