Measuring the welfare cost of inflation in South Africa

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Periodical article

Title:	Measuring the welfare cost of inflation in South Africa
Authors:	Gupta, Rangan Uwilingiye, Josine
Year:	2008
Periodical:	South African Journal of Economics
Volume:	76
Issue:	1
Pages:	16-25
Language:	English
Geographic term:	South Africa
Subjects:	standard of living inflation money demand
External link:	https://onlinelibrary.wiley.com/doi/10.1111/j.1813-6982.2008.00159.x/pdf
Abstract:	The authors estimate the long-run equilibrium relationship between money balance as a ratio of income and the Treasury bill rate for the period of February 1965 to January 2007, and in turn use the relationship to obtain welfare cost estimates of inflation. Using the Johansen technique (1991, 1995), they estimate a log-log specification and a semi-log model of the above relationship. Based on the fits of the specifications, they decide to rely more on the welfare cost measure obtained under the log-log money demand model. Their estimates suggest that the welfare cost of inflation for South Africa ranges between 0.34 percent and 0.67 percent of GDP, for a band of 3-6 percent of inflation. Thus, it seems that the South African Reserve Bank's (SARB) current inflation target band of 3-6 percent is not too poorly designed in terms of welfare. Bibliogr., notes, ref., sum. [Journal abstract]