On the Costs of Inflation: Israel's Example

Don Patinkin gave his account of the Israeli stabilization plan of 1985 in a recent issue of this Journal (Spring 1993, pp. 103-128). Part of his comment was devoted to the cost of inflation, which occurred despite the fact that Israel practiced the most comprehensive system of indexation of any country. Besides noting "the feeling of malaise that beset us from the constant changes in prices," Patinkin mentions various inflationary costs. One is the "shoe-leather" cost associated with the increased activity of the public in the financial markets, in an attempt to minimize inflationary erosion.