Home >> Working Paper
Structure Change Effect and Welfare Cost of Inflation
Read        DownLoad
TitleStructure Change Effect and Welfare Cost of Inflation  
AuthorYan Chengliang  
OrganizationCentral University of Finance and Economics 
Key WordsInflation; Welfare Cost; Structure Change 
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. 
Serial NumberWP1097 
  • Institute of Economics, Chinese Academy of Social Sciences
  • Copyright Economic Research Journal
  • The uploaded articles by this website express the authors’ views, not necessarily the views of this website.
  • Perennial Legal Counsel: Lu Kang (Chong Guang Law Office)
  • ISSN 0577-9154 CN 11-1081/F Postal Distribution Code 2-25l (Domestic) M16 (Overseas)
  • ICP 10211437 (Beijng)
  • No.2,Yuetan Bei Xiaojie, Xicheng District, Beijing 100836, P. R. China
  • Phone/Fax: (+8610) 68034153