We are grateful to editor Masao Ogaki and to Giuseppe Grande, Paul Kramp, Qiang Li, Francesco Lippi, and an anonymous referee for many interesting suggestions and comments. The views expressed in this paper are those of the authors and do not necessarily reflect the opinions of Banca d’Italia or the European Central Bank.
Sectoral Money Demand and the Great Disinflation in the United States
Article first published online: 25 NOV 2010
© 2010 The Ohio State University
Journal of Money, Credit and Banking
Volume 42, Issue 8, pages 1663–1678, December 2010
How to Cite
CALZA, A. and ZAGHINI, A. (2010), Sectoral Money Demand and the Great Disinflation in the United States. Journal of Money, Credit and Banking, 42: 1663–1678. doi: 10.1111/j.1538-4616.2010.00358.x
- Issue published online: 25 NOV 2010
- Article first published online: 25 NOV 2010
- Received January 23, 2009; and accepted in revised form March 1, 2010.
- welfare cost of inflation;
- flow-of-funds data;
- demand for money
Estimates of the welfare costs of inflation based on Bailey (1956) are typically computed using aggregate money demand models. Yet, the behavior of money demand may vary across sectors. Thus, the impact on welfare of inflation regime shifts may differ between households and firms. We specifically investigate the sectoral welfare implications of the shift from the Great Inflation to the present regime of low and stable inflation. For this purpose, we estimate different functional specifications of money demand for U.S. households and nonfinancial firms using flow-of-fund data covering four decades. We find that the benefits were significant for both sectors.