Canadian Journal of Economics / Revue canadienne d’´ economique, Vol. 49, No. 2 May 2016. Printed in Canada / Mai 2016. Imprim´ e au Canada 0008–4085 / 16 / 815–833 / © Canadian Economics Association Measuring the contribution of durable goods to the welfare cost of inflation Arman Mansoorian Department of Economics, York University Leo Michelis Department of Economics, Ryerson University Abstract. In this paper, we measure the contribution of durable goods to the welfare cost of inflation, in the context of an endogenous growth model with durable and nondurable goods, where purchases of the latter require only a partial cash payment compared with the former. Unlike existing measures, our proposed welfare measure is computationally efficient and relatively easy to implement.We find that durability adds a significant com- ponent to the welfare costs of inflation. R´ esum´ e. Mesurer la contribution des biens durables aux coˆ uts de bien-ˆ etre de l’inflation. Dans ce texte, on mesure la contribution des biens durables aux coˆ uts de bien-ˆ etre de l’inflation. Dans le contexte d’un mod` ele de croissance endog` ene avec des biens durables et non-durables, o` u l’achat de ces derniers requiert seulement un paiement comptant partiel par rapport ` a ce qui est le cas pour les biens durables. Contrairement aux mesures en vogue, la mesure propos´ ee est computationnellement efficiente et relativement facile ` a mettre en place. On d´ ecouvre que la durabilit´ e ajoute une composante significative aux coˆ uts de bien-ˆ etre de l’inflation. JEL classification: E22, E52, E58 1. Introduction A significant proportion of aggregate consumption in many contemporary economies consists of expenditures on durable goods such as automobiles, house- hold appliances, furniture and home electronics. For example, in the US, the division between durable and nondurable consumption expenditures is about 20% and 80%, respectively (Obstfeld and Rogoff 1996, p. 96). Moreover, the modes of payment for durable and nondurable purchases are different, with the latter often paid for wholly with cash, the former paid for with a small initial We would like to thank two anonymous referees and the editor for their helpful comments and suggestions, which resulted in substantial improvements in this paper. We also thank Abdallah Zalghout for expert research assistance. Any remaining errors are ours alone. Corresponding author: Leo Michelis, michelis@ryerson.ca