Seigniorage and the Welfare Cost of Inflation in Colombia

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The series Working Papers on Economics is published by the Office for Economic Studies at the Banco de la República (Central Bank of Colombia). The works published are provisional, and their authors are fully responsible for the opinions expressed in them, as well as for possible mistakes. The opinions expressed herein are those of the authors and do not necessarily reflect the views of Banco de la República or its Board of Directors.

AUTHOR OR EDITOR
Martha Rosalba Lopez
Autores y/o editores

We compute both seigniorage rate and  welfare cost of inflation rate in Colombia using a  Sidrauski-type model  in which preferences are separable functions of the service flows of  non-durable goods and  money holdings.  The set of the estimated parameters imply sizeable welfare cost of inflation  and  seigniorage rates. However,  eventhough for low inflation rates seigniorage rate markedly increases with the rate of inflation,  for very high inflation rates it reaches an asymptote.