Evaluating the Welfare Cost of Inflation in a Monetary Endogenous Growth General Equilibrium Model: The Case of South Africa
AbstractThis paper uses the general equilibrium monetary endogenous growth model of Dotsey and Ireland (1996), in which inflation distorts a variety of marginal decisions, to evaluate the welfare cost of inflation in South Africa – a country, where, since the February of 2000, the sole objective of the central bank has been to keep the inflation rate within the target band of 3 percent to 6 percent. Although individually none of the distortions is very large, they combine to yield substantial welfare cost estimates ranging between 0.70 percent of GDP to 1.33 percent of GDP for the lower and upper limits of the target band. More importantly, the welfare costs obtained here are at least three times more than those derived previously for the South African economy based on partial equilibrium approaches. These higher estimates, thus, tend to make a case for a possibly lower and narrower target band.
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Bibliographic InfoPaper provided by University of Pretoria, Department of Economics in its series Working Papers with number 201002.
Length: 20 pages
Date of creation: Feb 2010
Date of revision:
Inflation; Growth; Welfare;
Find related papers by JEL classification:
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- O42 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models
This paper has been announced in the following NEP Reports:
- NEP-AFR-2010-03-13 (Africa)
- NEP-ALL-2010-03-13 (All new papers)
- NEP-CBA-2010-03-13 (Central Banking)
- NEP-DGE-2010-03-13 (Dynamic General Equilibrium)
- NEP-MAC-2010-03-13 (Macroeconomics)
- NEP-MON-2010-03-13 (Monetary Economics)
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- Rangan Gupta, 2011.
"Growth-Effects of Inflation Targeting: The Role of Financial Sector Development,"
Annals of Economics and Finance,
Society for AEF, vol. 12(1), pages 65-87, May.
- Rangan Gupta, 2006. "Growth-Effects of Inflation Targeting: The Role of Financial Sector Development," Working Papers 200610, University of Pretoria, Department of Economics.
- Kafayat Amusa & Rangan Gupta & Shaakira Karolia & Beatrice D. Simo Kengne, 2010.
"The Long-Run Impact of Inflation in South Africa,"
201029, University of Pretoria, Department of Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Rangan Gupta).
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