Korean paper says welfare cost of inflation is ‘underestimated’

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Checkable deposits carry transaction costs

A working paper, published by the Bank of Korea, finds that interest-bearing deposits within M1 amplify the welfare cost of inflation.

The paper – Cash, Checkable Deposits and Cost of Inflation, by Manjong Lee and Sung Guan Lee – uses a standard search-theoretic model of money to explore the effects of an interest-bearing checkable deposit on the welfare cost of inflation.

While checkable deposits bear some return, they also incur a transactional cost, for example through the need for record

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