Long-Run Analysis in Alternative Optimizing Monetary Models

This paper explores the transmission channel from monetary variables to real variables in the steady-state equilibria of various neoclassical optimizing models with money. The existence of superneutrality is rejected for the four models at hand: time-cost transactions approach, output-cost transactions approach, money in the utility function model, and cash-in-advance model. However, the real effects of high rates of inflation are not large: output, consumption, and investment slightly fall with higher inflation rates. In addition, the welfare cost of inflation is calculated for annual rates of inflation ranging from 0% to 50%. Three of the models (all but the cash-in-advance model) agree on the following result: a 10% rate of inflation creates a permanent welfare cost equal to 0.3% of GDP per year.