A note on 'Inflation and Welfare'

Abstract

This note provides an analytical confirmation and a refinement of [Lucas Jr., R.E., 2000. Inflation and welfare. Econometrica 68 (62), 247-274 (March)] numerical findings regarding the characterization of optimality in the shopping-time model presented in that paper. The original numerical analysis concludes that a coefficient of risk aversion (σ) greater than 0.01 is sufficient for optimality. Here we use Arrow's sufficiency theorem to confirm this result and, more importantly, to show without more calculations how changes in parameters can affect it. © 2007 Elsevier B.V. All rights reserved.