| Sumario: | A generalized Keynes-Hicks macromodel is used to show that, given a demand function for money which has constant price and income elasticities, the elasticity of the magnitude of demand-induced recessions with respect to the rate of secular inflation is --1. An international cross-section of developed countries indicates that the best-fitting demand function for money has constant elasticities and the best-fitting relationship between the rate of secular inflation and the magnitude of recessions indeed has a constant elasticity of about -1. The estimated gains from secular inflation, combined with a measure of the familiar Bailey losses, yield empirical estimates of optimal rates of secular inflation. Part II of this paper discusses first the relationship between the demand for real cash balances with respect to the rate of anticipated inflation and the corresponding social losses from secular inflation. It then specifies a generalized Keynes-Hicks macromodel generating social gains from secular inflation in terms of its effects on mean involuntary unemployment. In Part III, alternative demand functions for money are estimated with data from twenty-two developed countries for the years 1950-65. In Part IV, the same sample is used in estimating the effects of expected inflation on mean involuntary unemployment.
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