ENDOGENOUS GROWTH AND THE WELFARE COSTS OF INFLATION - A RECONSIDERATION

Many economists share the view that the welfare costs of moderate rate s of money growth-cum-inflation are generally modest or small. This pa per investigates the sensitivity of this result to alternative model s pecifications and behavioral assumptions. We first construct a monetar y endogenous growth model with Romer's (1986) style of capital externa lity, and find that the real growth rate effect is substantially large , thus lending to much higher welfare costs than those in existing stu dies. To investigate the robustness of the result, we then conduct a s eries of experiments, by exploring the Romer model with an alternative specification of money demand and a class of other endogenous growth models. It is demonstrated, quite consistently, that our finding is co nfirmed in these models. (C) 1998 Elsevier Science B.V. All rights res erved.