IDEAS home Printed from https://ideas.repec.org/a/bla/sajeco/v76y2008i1p16-25.html

Measuring The Welfare Cost Of Inflation In South Africa

Author

Listed:
  • Rangan Gupta
  • Josine Uwilingiye

Abstract

In this paper, we estimate the long‐run equilibrium relationship between money balance as a ratio of income and the Treasury bill rate for the period of 1965:02 to 2007:01, and in turn use the relationship to obtain welfare cost estimates of inflation. Using the Johansen technique, we estimate a log‐log specification and a semi‐log model of the above relationship. Based on the fits of the specifications, we decided to rely more on the welfare cost measure obtained under the log‐log money demand model. Our estimates suggest that the welfare cost of inflation for South Africa ranges between 0.34% and 0.67% of GDP, for a band of 3‐6% of inflation. Thus, it seems that the South African Reserve Bank's current inflation target band of 3‐6% is not too poorly designed in terms of welfare.

Suggested Citation

  • Rangan Gupta & Josine Uwilingiye, 2008. "Measuring The Welfare Cost Of Inflation In South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 76(1), pages 16-25, March.
    • Handle: RePEc:bla:sajeco:v:76:y:2008:i:1:p:16-25
    DOI: 10.1111/j.1813-6982.2008.00159.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1813-6982.2008.00159.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1813-6982.2008.00159.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Kirsten L. Ludi & Marc Ground, 2006. "Investigating the Bank-Lending Channel in South Africa: A VAR Approach," Working Papers 200604, University of Pretoria, Department of Economics.
    2. Peter N. Ireland, 2009. "On the Welfare Cost of Inflation and the Recent Behavior of Money Demand," American Economic Review, American Economic Association, vol. 99(3), pages 1040-1052, June.
    3. David F. Hendry & Katarina Juselius, 2001. "Explaining Cointegration Analysis: Part II," The Energy Journal, , vol. 22(1), pages 75-120, January.
    4. Richard G. Anderson & Robert H. Rasche, 2001. "The remarkable stability of monetary base velocity in the United States, 1919-1999," Working Papers 2001-008, Federal Reserve Bank of St. Louis.
    5. repec:aen:journl:2000v21-01-a01 is not listed on IDEAS
    6. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Eliphas Ndou & Nombulelo Gumata & Mthuli Ncube & Eric Olson, 2013. "Working Paper 189 - An Empirical Investigation of the Taylor Curve in South Africa," Working Paper Series 992, African Development Bank.
    2. Zia-Ur- Rahman, 2019. "Influence of Excessive Expenditure of the Government in Perspective of Interest Rate and Money Circulation Which in Turn Affects the Growing Process in Pakistan," Asian Journal of Economics and Empirical Research, Asian Online Journal Publishing Group, vol. 6(2), pages 120-129.
    3. Andrew Phiri, 2012. "Threshold effects and inflation persistence in South Africa," Journal of Financial Economic Policy, Emerald Group Publishing Limited, vol. 4(3), pages 247-269, July.
    4. Steven F. Koch & Adl Bosch, 2009. "Inflation and the HouseholdTowards a Measurement of the Welfare Costs of Inflation," Working Papers 3488, South African Reserve Bank.
    5. Lumengo Bonga-Bonga & Ntsakeseni Letitia Lebese, 2019. "Rethinking The Current Inflation Target Range In South Africa," Journal of Developing Areas, Tennessee State University, College of Business, vol. 53(2), pages 13-27, April-Jun.
    6. Irfan Ahmad Shah & Manmohan Lal Agarwal & Srikanta Kundu, 2019. "Welfare Cost of Inflation: Evidence from India," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 17(4), pages 781-799, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:rza:wpaper:068 is not listed on IDEAS
    2. Ruixiaoxiao Zhang & Geoffrey QP Shen & Meng Ni & Johnny Wong, 2020. "The relationship between energy consumption and gross domestic product in Hong Kong (1992–2015): Evidence from sectoral analysis and implications on future energy policy," Energy & Environment, , vol. 31(2), pages 215-236, March.
    3. David F. Hendry & Grayham E. Mizon, 2016. "Improving the teaching of econometrics," Cogent Economics & Finance, Taylor & Francis Journals, vol. 4(1), pages 1170096-117, December.
    4. Dergiades, Theologos & Kaufmann, Robert K. & Panagiotidis, Theodore, 2016. "Long-run changes in radiative forcing and surface temperature: The effect of human activity over the last five centuries," Journal of Environmental Economics and Management, Elsevier, vol. 76(C), pages 67-85.
    5. Faugere, Christophe, 2010. "Macrofoundations for A (Near) 2% Inflation Target," MPRA Paper 23491, University Library of Munich, Germany, revised 25 Jun 2010.
    6. Patrick Wilson & Michael White & Neil Dunse & Chee Cheong & Ralf Zurbruegg, 2011. "Modelling Price Movements in Housing Micro Markets," Urban Studies, Urban Studies Journal Limited, vol. 48(9), pages 1853-1874, July.
    7. Zou, Gao Lu, 2012. "The long-term relationships among China's energy consumption sources and adjustments to its renewable energy policy," Energy Policy, Elsevier, vol. 47(C), pages 456-467.
    8. repec:ipg:wpaper:2014-474 is not listed on IDEAS
    9. Taha, Roshaiza & Colombage, Sisira R.N. & Maslyuk, Svetlana & Nanthakumar, Loganathan, 2013. "Does financial system activity affect tax revenue in Malaysia? Bounds testing and causality approach," Journal of Asian Economics, Elsevier, vol. 24(C), pages 147-157.
    10. Miller, Stephen M. & Martins, Luis Filipe & Gupta, Rangan, 2019. "A Time-Varying Approach Of The Us Welfare Cost Of Inflation," Macroeconomic Dynamics, Cambridge University Press, vol. 23(2), pages 775-797, March.
    11. Ladislav Kristoufek, 2022. "On the role of stablecoins in cryptoasset pricing dynamics," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-26, December.
    12. Evangelia Kasimati, 2011. "Did the climb on the Greek sovereign spreads cause the devaluation of euro?," Applied Economics Letters, Taylor & Francis Journals, vol. 18(9), pages 851-854.
    13. Stewart, Kenneth G., 2024. "The simple macroeconometrics of the quantity theory and the welfare cost of inflation," Journal of Economic Dynamics and Control, Elsevier, vol. 162(C).
    14. Borozan, Djula, 2013. "Exploring the relationship between energy consumption and GDP: Evidence from Croatia," Energy Policy, Elsevier, vol. 59(C), pages 373-381.
    15. Chee Seng Cheong & Patrick J. Wilson & Ralf Zurbruegg, 2009. "An analysis of the long‐run impact of fixed income and equity market performance on Australian and UK securitised property markets," Journal of Property Investment & Finance, Emerald Group Publishing Limited, vol. 27(3), pages 259-276, April.
    16. Montes, Gabriel Caldas & dos Anjos, Daniel Pereira, 2024. "Are public debt and public debt expectations associated with debt management strategies?," The Quarterly Review of Economics and Finance, Elsevier, vol. 98(C).
    17. Brad R. Humphreys & Scott Schuh & Corey J.M. Williams, "undated". "Learning by Doing, Productivity, and Growth: New Evidence on the Link between Micro and Macro Data," Working Papers 24-02, Department of Economics, West Virginia University.
    18. Krogscheepers, Corris & Gossel, Sean Joss, 2015. "Input cost and international demand effects on the production of platinum group metals in South Africa," Resources Policy, Elsevier, vol. 45(C), pages 193-201.
    19. Simón Sosvilla-Rivero & Emma García, "undated". "Purchasing Power Parity Revisited," Working Papers 2003-20, FEDEA.
    20. Kent Kimbrough & Ioannis Spyridopoulos, 2012. "The Welfare Cost of Inflation in Greece," South-Eastern Europe Journal of Economics, Association of Economic Universities of South and Eastern Europe and the Black Sea Region, vol. 10(1), pages 41-52.
    21. Jana Juriová, 2016. "Money Market Equilibrium in the Czech Republic," Prague Economic Papers, Prague University of Economics and Business, vol. 2016(3), pages 321-334.
    22. Chang, Yoosoon & Kaufmann, Robert K. & Kim, Chang Sik & Miller, J. Isaac & Park, Joon Y. & Park, Sungkeun, 2020. "Evaluating trends in time series of distributions: A spatial fingerprint of human effects on climate," Journal of Econometrics, Elsevier, vol. 214(1), pages 274-294.

    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:sajeco:v:76:y:2008:i:1:p:16-25. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/essaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.