TY  - JOUR
AU  - Todter, Karl-Heinz
AU  - Ziebarth, Gerhard
TI  - Price Stability vs. Low Inflation in Germany: An Analysis of Costs and Benefits
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6170
PY  - 1997
Y2  - September 1997
DO  - 10.3386/w6170
UR  - http://www.nber.org/papers/w6170
L1  - http://www.nber.org/papers/w6170.pdf
N1  - Author contact info:
Karl-Heinz Todter

Gerhard Ziebarth
M1  - published as Karl-Heinz Todter, Gerhard Ziebarth. "Price Stability versus Low Inflation in Germany: An Analysis of Costs and Benefits," in Martin Feldstein, editor, "The Costs and Benefits of Price Stability" University of Chicago Press (1999)

M2  - featured in NBER digest on 1998-03-01
AB  - We empirically investigate the costs and benefits of going from low inflation to price stability in the case of Germany. Recent empirical evidence on the sacrifice ratio suggests that the break-even point at which the permanent benefits of reducing the trend rate of inflation by 2 percentage points exceeds the temporary costs in terms of output losses is below 0.3% of GDP. We analyze the welfare implications of the interactions even of moderate rates of inflation with the distorting effects of the German tax system.  Four areas of economic activity are considered: intertemporal allocation of consumption, demand for owner-occupied housing, money demand, and government debt service.  We estimate the direct welfare effects of reducing the rate of inflation as well as the indirect tax revenue effects. We find that reducing the inflation rate by 2 percentage points permanently increases welfare by 1.4% of GDP.  Finally, the optimal rate of disinflation is considered.
ER  -