Some Costs and Benefits of Price Stability in the United Kingdom

  title={Some Costs and Benefits of Price Stability in the United Kingdom},
  author={Hasan Bakhshi and Andrew G. Haldane and Neal Hatch},
  journal={ERN: Banking \& Monetary Policy (Topic)},
In a previous attempt to articulate the costs of inflation (Leigh-Pemberton (1992)), the Bank of England outlined the following costs of a fully-anticipated inflation: - the cost of economising on real money balances -- so-called shoe-leather' effects; - the costs of operating a less-than-perfectly indexed tax system; - the costs of front-end loading' of nominal debt contracts; - the cost of constantly revising price lists -- so called menu costs' Feldstein (1996) quantified the first two of… 
Macroeconomic Costs and Benefits of Price Stability
Today price stability is an objective of most central banks in the western world. The central banks of many countries have also been given considerable independence from policy-makers to determine
How Uncertain are the Welfare Costs of Inflation?
This paper quantifies for the United Kingdom the general equilibrium costs of individuals holding cash to economise on 'shopping time'. These are a subset of a wider range of costs caused by
Price Stability: Some Costs and Benefits in New Zealand
The welfare effects of going from 2 percent 'true' inflation to price stability are supportive of price stability, but they are not robust to all plausible values of some key parameters.
Costs of Inflation in Japan: Tax and Resource Allocation
This paper tries to shed light on the optimal inflation rate by investigating the effects of changes in inflation on resource allocation via changes in the effective tax rates. Given that some taxes
Optimal Rate of Inflation in Hungary
This paper, requested by the Monetary Council, attempts to determine the level of inflation consistent with price stability, taking into account the characteristics of the Hungarian economy. Price
The Welfare Effects of Inflation: A Cost-Benefit Perspective
This paper reviews theory and evidence of the welfare effects of inflation from a costbenefit perspective. Basic models and selected empirical results are discussed. Historically, in assessing the
Inflation and Adjustment of Relative Prices in Georgia
The paper focuses on the dynamics of relative prices of goods and services in Georgia in the period of relative macroeconomic stabilization i.e., in years 1996–2001. Structure of Georgian consumer
Inflation and corporate investment – a critical survey
The analysis of inflation’s effect on investment can contribute to a deeper understanding of the benefits of a monetary policy oriented towards price stability. It can also help conduct such a policy
Relevant Economic Issues Concerning the Optimal Rate of Inflation
This paper reviews the key economic issues concerning the welfare costs of inflation and deflation, with a view to shedding light on the desirable properties of the inflation process. Our review of
A cost-benefit analysis of going from low inflation to price stability in Spain
This paper performs a cost-benefit analysis of moving from low inflation (roughly 3.5 percent) to price stability (about 1.5 percent) in Spain. Estimates of the costs (in terms of output losses) and


The Costs and Benefits of Going from Low Inflation to Price Stability
This paper evaluates the welfare gain from achieving price stability and compares it to the cost of the transition. In calculating the gain from price stability, the paper emphasizes the distortions
The Welfare Cost of Permanent Inflation and Optimal Short-Run Economic Policy
At a minimum, this paper should serve as a warning against too easy an acceptance of the view that the costs of sustained inflation are small relative to the costs of unemployment. If a temporary
Inflation and the User Cost of Capital: Does Inflation Still Matter?
In the late 1970s, many economists argued that the deleterious effects of inflation on the user cost of capital for U.S. firms were large. Since that time, the tax code has changed, the level of
Small Menu Costs and Large Business Cycles: A Macroeconomic Model of Monopoly
I. INTRODUCTION The conflict between modern neoclassical and traditional Keynesian theories of the business cycle centers upon the pricing mechanism.' In neoclassical models, prices are fully
The Welfare Costs of Moderate Inflations
IN THE RECENT PAST THE VIEW that a little bit of inflation was good for the economy was widely held. The Phillips curve, in its earlier incarnations, implied that moderate inflation was worth
Taxation and the Cost of Capital
The way in which taxation affects corporate financial policy, and the level of investment through the structure of the cost of capital, is still a bone of contention. Various specifications of the
Distortionary Taxes and the Provision of Public Goods
When comparing marginal costs and benefits of a public project, most economists think in terms of adding together the marginal costs of production plus marginal costs of additional distortionary
The Welfare Cost of Inflation in General Equilibrium
This paper presents a general equilibrium monetary model in which inflation distorts a variety of marginal decisions. Although individually none of the distortions is very large, they combine to
Measurement Bias in Price Indices: An Application to the UK's RPI
The paper assesses the potential for systematic discrepancies between the measured RPI and an 'ideal' cost-of- living which, the paper argues, should be the target variable for monetary policy (note
How Do U.K. Companies Set Prices?
This paper reports the main results of a survey carried out by the Bank in the autumn of 1995 of the price-setting behaviour of 654 UK companies. It elaborates on an article in the May 1996 Bank of