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Consideration of the Welfare Cost of Inflation with General Equilibrium Model Approach (in Persian)

Author

Listed:
  • Gudarzi Farahani, Yazdan

    (Iran)

  • Moshtaridoust, Shiva

    (Iran)

  • Varmazyari, Behzad

    (Iran)

Abstract

In this paper we studied the welfare cost of inflation. Therefore¡ to meet this end¡ we use a three section new Keynesian model of the dynamic Stochastic General equilibrium. Inflation is a complex phenomenon that has destructive effects on society. In this model we aim to solve linear log and non linear form by using annual data for Iran. The empirical findings indicate that welfare cost of inflation is equivalent to 5.5 percent of GDP for 10 percent of inflation¡ and we find that for a model with full indexation the welfare cost of inflation is equivalent to 3.7 percent decrease in GDP. Moreover¡ results show that fluctuation in sustainable level of inflation leads to a decrease in the social welfare. JEL classification: E31, E42, E51

Suggested Citation

  • Gudarzi Farahani, Yazdan & Moshtaridoust, Shiva & Varmazyari, Behzad, 2011. "Consideration of the Welfare Cost of Inflation with General Equilibrium Model Approach (in Persian)," Journal of Monetary and Banking Research (فصلنامه پژوهش‌های پولی-بانکی), Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 3(8), pages 87-120, September.
    • Handle: RePEc:mbr:jmbres:v:3:y:2011:i:8:p:87-120
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    More about this item

    Keywords

    Inflation; Welfare cost; DSGE; New Keynesian;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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