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The Welfare Cost of Inflation in Iran

Author

Listed:
  • Kazem Yavari

    (Corresponding Author-Associate Professor of Economics, TMU, and Vice President, Research, ITSR)

  • Mina Mehrnoosh

    (Ph.D. Student, Al-Zahra University, and Director of Marketing and Market Research, ITSR)

Abstract

The purpose of this paper is to estimate the welfare cost of inflation in Iran. We first use the long-horizon regression approach developed by Fisher and Seater (1993) to obtain an estimate of the inflation rate elasticity of money demand and then the Baily’s consumer surplus approach to calculate the welfare cost function. The results show that reducing inflation rate from 40% to 0% increases the welfare of money holders by 0.3% of GDP. The welfare cost function helps the central bank to estimate the welfare effects of monetary policy.

Suggested Citation

  • Kazem Yavari & Mina Mehrnoosh, 2005. "The Welfare Cost of Inflation in Iran," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 10(2), pages 111-117, fall.
    • Handle: RePEc:eut:journl:v:10:y:2005:i:2:p:111
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    References listed on IDEAS

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    3. Fisher, Mark E & Seater, John J, 1993. "Long-Run Neutrality and Superneutrality in an ARIMA Framework," American Economic Review, American Economic Association, vol. 83(3), pages 402-415, June.
    4. MacKinnon, James G, 1994. "Approximate Asymptotic Distribution Functions for Unit-Root and Cointegration Tests," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(2), pages 167-176, April.
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