TY  - JOUR
AU  - Bakhshi, Hasan
AU  - Haldane, Andrew G
AU  - Hatch, Neal
TI  - Some Costs and Benefits of Price Stability in the United Kingdom
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6660
PY  - 1998
Y2  - July 1998
DO  - 10.3386/w6660
UR  - http://www.nber.org/papers/w6660
L1  - http://www.nber.org/papers/w6660.pdf
N1  - Author contact info:
hasan bakhshi
NESTA
1 Plough Place
London EC4A 1DE
United Kingdom
E-Mail: hasan.bakhshi@lehman.com

Andrew Haldane
Bank of England
London EC2R 8AH
E-Mail: andy.haldane@bankofengland.co.uk

Neal Hatch
E-Mail: bank-economist@bankofengland.co.uk
M1  - published as Hasan Bakhshi, Andrew Haldane, Neal Hatch. "Some Costs and Benefits of Price Stability in the United Kingdom," in Martin Feldstein, editor, "The Costs and Benefits of Price Stability" University of Chicago Press (1999)

AB  - 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 these costs when moving from 2% inflation to price stability in the U.S. Feldstein concluded that the permanent welfare gains through these two channels -- suitably discounted -- alone exceeded the transient costs of doing so.  This paper aims to replicate Feldstein's analysis for the U.K. Welfare effects are quantified using deadweight loss analysis familiar from public finance economics.  Because inflation exacerbates tax distortions that exist even without inflation, the welfare costs are trapezoids rather than the usual triangles, or, alternatively, first-order rather than second-order losses. We find that the welfare gains from moving to price stability through the two channels identified above are lower in
ER  -