Development of approaches to the assessment of welfare losses due to inflation in Russia[Разработка Подходов К Оценке Потерь Благосостояния Из-За Инфляции В России]

This workpaper is devoted to the elaboration of approaches that can be used to estimate welfare costs of inflation, taking into account the peculiarities of the Russian economy, as well as obtaining quantitative estimates. The first section discusses theoretical models in the framework of the partial equilibrium approach, proposed in the papers of Bailey, Friedman, and Lucas, and giving ways to calculate costs of inflation. The second section provides an overview of international experience in costs of inflation estimation in countries with different levels of inflation; it is concluded that the results of the estimation are extremely sensitive to the choice of the functional form of the demand for money equation and, as a consequence, the estimated coefficients of the equation. The third section presents modifications of standard approaches used to estimate the costs of inflation, taking into account the prolonged growth of monetization in the Russian economy.