On the costs of inflation with a general equilibrium welfare measure and alternative utility functions

Abstract

This paper examines the costs associated with the level and variability of inflation in the context of a general equilibrium ($GE$) welfare measure which accounts for the optimal adjustments of all the endogenous variables in the model in response to the transfers received by the households. We compare and contrast the $GE$ welfare costs with the conventional consumption equivalent ($CE$) measure across three utility functions that have been used routinely in the macroeconomics literature.