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Information Journal Paper

Title

AN EMPIRICAL TEST BETWEEN INFLATION AND WELFARE: THE CASE OF IRAN 1350-1379

Pages

  59-88

Abstract

 This paper aims to quantify the WELFARE cost of INFLATION based on Iran time series data during 1970-2001. To do this, by including a banking sector in the Lucas (2000) model, a model was constructed in which there is a new distorting channel for INFLATION as well as the transaction time as emphasized by Lucas and others. In accordance with McCallum and Good friend's "Shopping Time Model" transaction time (cost) may decrease by holding money. In the model employed in the present study, INFLATION can impose WELFARE cost on economy through two distorting channels: first, during INFLATIONary period agents intend to decrease their non-interest bearing money hence, their benefits from the so-called liquidity services of money to facilitate transactions will decline. Second, INFLATION may distort inside money market by increasing bank seignior age. The WELFARE cost due to the latter channel which has been neglected in most of the research carried out so far.The proposed WELFARE cost function of this paper has been estimated for two logarithmic and semi- logarithmic forms. The empirical findings indicate a sustained 10 percent INFLATION costs the economy an equivalent of 7.2 percent of GDP in log form and 6.6 percent of GDP in semi-log form, in which almost half of the loss is due to the distortion of the inside money market. Previous studies of WELFARE cost of INFLATION neglect the second channel they, in fact, underestimate the true WELFARE cost of INFLATION. The results of the study imply a sizable WELFARE cost of INFLATION. Then, the neglect of the trade-off between INFLATION and WELFARE will induce the implementation of policies not leading to suitable resources allocation and social WELFARE. In the end the study strongly suggests that INFLATION be considered seriously in making economic policies to decrease its rate as much as possible.

Cites

References

Cite

APA: Copy

JAFARI SAMIMI, A., & TAGHI NEJAD OMRAN, V.. (2005). AN EMPIRICAL TEST BETWEEN INFLATION AND WELFARE: THE CASE OF IRAN 1350-1379. JOURNAL OF SUSTAINABLE GROWTH AND DEVELOPMENT (THE ECONOMIC RESEARCH), 4(14), 59-88. SID. https://sid.ir/paper/86386/en

Vancouver: Copy

JAFARI SAMIMI A., TAGHI NEJAD OMRAN V.. AN EMPIRICAL TEST BETWEEN INFLATION AND WELFARE: THE CASE OF IRAN 1350-1379. JOURNAL OF SUSTAINABLE GROWTH AND DEVELOPMENT (THE ECONOMIC RESEARCH)[Internet]. 2005;4(14):59-88. Available from: https://sid.ir/paper/86386/en

IEEE: Copy

A. JAFARI SAMIMI, and V. TAGHI NEJAD OMRAN, “AN EMPIRICAL TEST BETWEEN INFLATION AND WELFARE: THE CASE OF IRAN 1350-1379,” JOURNAL OF SUSTAINABLE GROWTH AND DEVELOPMENT (THE ECONOMIC RESEARCH), vol. 4, no. 14, pp. 59–88, 2005, [Online]. Available: https://sid.ir/paper/86386/en

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