Welfare Costs of Inflation in Nepal: An Empirical Analysis
This paper empirically examines the welfare losses arising from the currently rising inflation rate of Nepal using the method introduced into the literature by Bailey (1956) and the demand for real balance function put forward by Deaver (1970). Utilizing annual time series ranging from 1973 to 2009, the result obtained here supports the theoretical underpinning that the rise in inflation is leading to decrease in real balance and hence increase in welfare loss. It is also found that the rate of increases in welfare cost as a result of significant rises in inflation is sluggish. Further, the finding also leads one to conclude that the significant fraction of real income as welfare cost in the year 2010 corresponds to other factors affecting real balance rather than anticipated inflation. However, the evidence is consistent with the view that such cost may change under the relaxation of restrictions imposed corresponding to government’s motivation in raising inflation tax revenue (seigniorage), investment decisions of the economic agents, inflation uncertainty affecting the behavior of money holders and optimal rate of inflation specified.
Volume (Year): 22 (2010)
Issue (Month): (April)
|Contact details of provider:|| Web page: http://www.nrb.org.np/ecorev/|
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Michelle R. Garfinkel, 1989. "What is an "acceptable" rate of inflation?--a review of the issues," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 3-15.
- David Card & Dean Hyslop, 1997.
"Does Inflation "Grease the Wheels of the Labor Market"?,"
in: Reducing Inflation: Motivation and Strategy, pages 71-122
National Bureau of Economic Research, Inc.
- David Card & Dean Hyslop, 1995. "Does Inflation 'Grease the Wheels of the Labor Market'?," Working Papers 735, Princeton University, Department of Economics, Industrial Relations Section..
- David Card & Dean Hyslop, 1996. "Does Inflation "Grease the Wheels of the Labor Market"?," NBER Working Papers 5538, National Bureau of Economic Research, Inc.
- Zvi Eckstein & Leonardo Leiderman, 1991.
"Seigniorage and the welfare cost of inflation: evidence from an intertemporal model of money and consumption,"
Discussion Paper / Institute for Empirical Macroeconomics
40, Federal Reserve Bank of Minneapolis.
- Eckstein, Zvi & Leiderman, Leonardo, 1992. "Seigniorage and the welfare cost of inflation: Evidence from an intertemporal model of money and consumption," Journal of Monetary Economics, Elsevier, vol. 29(3), pages 389-410, June.
- Eckstein, Z. & Leiderman, L., 1991. "Seignorage and the Welfare Cost of Inflation; Evidence from an Intertemporal Model of Money and Consumption," Papers 7-91, Tel Aviv.
- Kevin Dowd, 1994. "The Costs of Inflation and Disinflation," Cato Journal, Cato Journal, Cato Institute, vol. 14(2), pages 305-331, Fall.
- Tower, Edward, 1971. "More on the Welfare Cost of Inflationary Finance," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 3(4), pages 850-60, November.
- Feldstein, Martin S, 1979.
"The Welfare Cost of Permanent Inflation and Optimal Short-Run Economic Policy,"
Journal of Political Economy,
University of Chicago Press, vol. 87(4), pages 749-68, August.
- Martin Feldstein, 1977. "The Welfare Cost of Permanent Inflation and Optimal Short-Run Economic Policy," NBER Working Papers 0201, National Bureau of Economic Research, Inc.
- William T. Gavin, 1990. "In defense of zero inflation," Working Paper 9005, Federal Reserve Bank of Cleveland.
- R. F. Lucas, 1989. "The Bank of Canada and Zero Inflation: A New Cross of Gold?," Canadian Public Policy, University of Toronto Press, vol. 15(1), pages 84-93, March.
- William T. Gavin & Alan C. Stockman, 1988. "The case for zero inflation," Economic Commentary, Federal Reserve Bank of Cleveland, issue Sep.
When requesting a correction, please mention this item's handle: RePEc:nrb:journl:v:22:y:2010:p:57-68. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dr. Bishnu Prasad Gautam)
If references are entirely missing, you can add them using this form.