SciELO - Scientific Electronic Library Online

 
vol.12 issue2IAS15 inflation adjustments and EVA: Empirical evidence from a highly variable inflation regime author indexsubject indexarticles search
Home Pagealphabetic serial listing  

South African Journal of Economic and Management Sciences

On-line version ISSN 2222-3436
Print version ISSN 1015-8812

Abstract

GUPTA, Rangan  and  UWILINGIYE, Josine. Measuring the welfare cost of inflation in South Africa: A reconsideration. S. Afr. j. econ. manag. sci. [online]. 2009, vol.12, n.2, pp.137-146. ISSN 2222-3436.

In this paper, using the Fisher and Seater (1993) long-horizon approach, the writers estimate the long-run equilibrium relationship between money balance as a ratio of income and the Treasury bill rate for South Africa over the period 1965:02 to 2007:01, and, in turn, use the obtained estimates of the interest elasticity and the semi-elasticity to derive the welfare cost estimates of inflation, using both Bailey's (1956) consumer surplus approach and Lucas's (2000) compensating variation approach. When the results are compared to welfare cost estimates obtained recently by Gupta and Uwilingiye (2008), using the same data set, but basing it on Johansen's (1991, 1995) cointegration technique, the values are less than half of those obtained in the latter study. These range from 0.16 percent to 0.36 percent of GDP for the target-band of three percent to six percent of inflation. The paper thus highlights the fact that welfare cost estimates of inflation are sensitive to the methodology used to estimate the long-run equilibrium money demand relationships.

Keywords : Long-horizon regression; money demand; welfare cost of inflation.

        · text in English     · English ( pdf )

 

Creative Commons License All the contents of this journal, except where otherwise noted, is licensed under a Creative Commons Attribution License