Inflation and welfare

This paper surveys research on the welfare cost of inflation. New estimates are provided, based on U.S. time series for 1900-94, interpreted in a vari ety of ways. It is estimated that the gain from reducing the annual inflati on rate from 10 percent to zero is equivalent to an increase in real income of slightly less than one percent. Using aggregate evidence only, it may n ot be possible to estimate reliably the gains from reducing inflation furth er, to a rate consistent with zero nominal interest.