Cash-in-advance models usually require agents to reallocate money and bonds in fixed periods. Every month or quarter, for example. I show that fixed periods underestimate the welfare cost of inflation. I use a model in which agents choose how often they exchange bonds for money. In the benchmark specification, the welfare cost of 10
percent instead of 0 inflation increases from 0.1 percent of income
with fixed periods to 1 percent with optimal periods. The results are robust to different preferences, to different compositions of income in bonds or money, and to the introduction of capital and labor. (JEL: E30, E40, E50)
"Rebalancing Frequency and the Welfare Cost of Inflation."
American Economic Journal: Macroeconomics,
Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data)
Money and Interest Rates: General
Monetary Policy, Central Banking, and the Supply of Money and Credit: General