Welfare Cost of Inflation

This article talks about Welfare Cost of Inflation. Federal Reserve’s well-established policy of low but positive inflation impose on the economy, when compared to the optimal monetary policy prescribed by Friedman (1969). These facts about price movements are a key input in recent quantitative models of the aggregate effects of nominal rigidities. Recent general-equilibrium models that estimate the welfare cost of inflation are Dotsey and Ireland (1996), Aiyagari, Braun, and Eckstein (1998), Burstein and Hellwig (2008), and Henriksen and Kydland (2010).