| Abstract | This paper introduces monetary policy in a structure change model through the cash in advance constraint and we explore the effect of inflation on structural change, as well as estimate the welfare cost of inflation. It is found that when consumption is constrained by the CIA condition, non-homothetic preference is the only channel, through which monetary policy can affect structure change, and when both consumption and investment are constrained by the CIA condition, non-homothetic preferences and capital deepening are channels through which inflation can affect structure change. Inflation depresses the process of structure change, the higher the inflation rate, the lower labor shares in the agricultural sector. Quantitative analysis shows that the welfare cost of inflation is moderate. When the inflation rate rises by 10 percent, the welfare cost is equivalent to reduce consumption by 1.7%-3.14%。We argue that the previous literature neglects the impact of inflation on structure change, which underestimates the welfare cost of inflation. |