by
Serletis, Apostolos and
Dai, WeiThis paper uses the Markov switching approach to account for instabilities in the long-
run money demand function and compute the welfare cost of inflation in the United States.
In doing so, it circumvents the problem of data-mining of some earlier seminal contributions
on these issues, allowing for complicated nonlinear dynamics and sudden changes in the
parameters of the money demand function. Moreover, it extends the sample period, and
investigates the robustness of results to alternative money demand specifications, monetary
aggregation procedures, and assumptions regarding dynamics aspects of the money demand
specification.
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