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Economic Commentary

Rethinking the Welfare Cost of Inflation

New models of monetary economies, developed in the last 15 years, suggest that traditional measures of the welfare cost of inflation may underestimate the true loss that inflation inflicts on society. According to these models, the cost of 10 percent inflation ranges from 1 to 5 percent of real income.

The views authors express in Economic Commentary are theirs and not necessarily those of the Federal Reserve Bank of Cleveland or the Board of Governors of the Federal Reserve System. The series editor is Tasia Hane. This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License. This paper and its data are subject to revision; please visit clevelandfed.org for updates.

Suggested Citation

Craig, Ben R., and Guillaume Rocheteau. 2005. “Rethinking the Welfare Cost of Inflation” Federal Reserve Bank of Cleveland, Economic Commentary 3/1/2005.