Two additions to Lucas's 'inflation and welfare'

Resumo

This work adds to Lucas (2000) by providing analytical solutions to two problems that are solved only numerically by the author. The first part uses a theorem in control theory (Arrow' s sufficiency theorem) to provide sufficiency conditions to characterize the optimum in a shopping-time problem where the value function need not be concave. In the original paper the optimality of the first-order condition is characterized only by means of a numerical analysis. The second part of the paper provides a closed-form solution to the general-equilibrium expression of the welfare costs of inflation when the money demand is double logarithmic. This closed-form solution allows for the precise calculation of the difference between the general-equilibrium and Bailey's partial-equilibrium estimates of the welfare losses due to inflation. Again, in Lucas's original paper, the solution to the general-equilibrium-case underlying nonlinear differential equation is done only numerically, and the posterior assertion that the general-equilibrium welfare figures cannot be distinguished from those derived using Bailey's formula rely only on numerical simulations as well.

Ficha do documento

Tipo

Estudo

Ano

2004

Instituição

Escola de Pós-Graduação em Economia da FGV

Fonte

Repositório da FGV

Idioma

Inglês

Acesso

Não informado

Identificador

oai:repositorio.fgv.br:10438/963

Temas

Economia

Palavras-chave

Arrow's theoremOptimal controlEconomiaInflaçãoBem-estar econômico