@article{Uncertainty:1470,
      recid = {1470},
      author = {Chiu, Jonathan and Molico, Miguel},
      title = {Uncertainty, Inflation, and Welfare},
      publisher = {Bank of Canada},
      address = {2008},
      pages = {1 online resource (iii, 32 pages)},
      abstract = {This paper studies the welfare costs and the  redistributive effects of inflation in the presence of  idiosyncratic liquidity risk, in a micro-founded  search-theoretical monetary model. We calibrate the model  to match the empirical aggregate money demand and the  distribution of money holdings across households, and study  the effects of inflation under the implied degree of market  incompleteness. We show that in the presence of imperfect  insurance the estimated long-run welfare costs of inflation  are on average 40% smaller compared to a complete markets,  representative agent economy, and that inflation induces  important redistributive effects across households. For  example, the welfare gains of reducing inflation from 10%  to 0% is 0.59% of income. Furthermore, we estimate that the  long-run welfare gains of reducing the typical current  inflation target of 2 to 1 percent to be 0.06% of income.},
      url = {http://www.oar-rao.bank-banque-canada.ca/record/1470},
      doi = {https://doi.org/10.34989/swp-2008-13},
}