Cost of inflation in inventory theoretical models

We show that the area under the long-run demand curve for money approximates the welfare cost of inflation for a large class of inventory theoretical models of money demand. The class of inventory models considered has a general stochastic structure of the net cash expenditures, as well as of the fixed/variable cost of withdrawing and depositing money. Thus, our framework nests a large number of models that have been studied in the literature. The results complement those obtained by Lucas (2000) for money-in-the-utility function and for shopping-time models.