Consumption and the means of payment: An empirical analysis for the UnitedKingdom

We estimate a model of consumption and money holdings with multiple means o f payment, using data for the United Kingdom. The model describes a technol ogy for transactions, where money and credit are imperfect substitutes. It allows us to identify shocks to the transactions technology. We evaluate th e value of long-term changes in the payments systems to the representative consumer, as well as the welfare cost of inflation from 1977 to 1998. The e stimates allow us to evaluate the welfare costs of inflation of this period . The model also has implications for consumption-smoothing in response to monetary shocks.