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The Welfare Cost of Inflation in China

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  • Zeng Lian
  • Xinyue Li
  • Lixin Luo
  • Libo Xu

Abstract

We study the money demand in China to quantify the welfare cost of inflation by considering different approaches to model the money demand function. The preferred money demand function, based on neoclassical demand theory, indicates that if the central bank of China follows the standard inflation target of 2%, the welfare cost would be equivalent to a loss of 0.0603% of GDP. Furthermore, compared to estimates in the literature, the welfare cost of inflation in China is relatively small at all different inflation levels.

Suggested Citation

  • Zeng Lian & Xinyue Li & Lixin Luo & Libo Xu, 2026. "The Welfare Cost of Inflation in China," Bulletin of Economic Research, Wiley Blackwell, vol. 78(3), pages 573-588, July.
    • Handle: RePEc:bla:buecrs:v:78:y:2026:i:3:p:573-588
    DOI: 10.1111/boer.70034
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