چکیده:
The welfare cost of inflation in a new Keynesian model has been studied in this article. Nominal prices and wages are subjected to Rotenberg's adjustments in the benchmark model. In addition, this study uses the CIA model to compare the welfare cost of seigniorage tax and consumption tax. The model is calibrated for the Iranian economy and the results of the calibration are as following: In a steady state, a seigniorage tax imposes higher costs on social welfare rather than consumption taxes. We also find that the welfare cost of inflation increases linearly with the inflation rate and the welfare cost in a model without the government is higher than the model with government expenditures. Numerically, in the benchmark model, an annual inflation rate of 10% entails a welfare cost (relative to a -1.5% annual inflation rate, the Friedman Rule’s level of inflation rate) of 1.69% of a steady state consumption without a government. If we add the government to the model, this cost will be 1.28%. This amount will be only 0.5% if we use the RBC model. According to Ascra's measurement (2009), inflation tax increases welfare costs, but consumption tax decreases welfare costs.
خلاصه ماشینی:
The model is calibrated for the Iranian economy and the results of the calibration are as following: In a steady state, a seigniorage tax imposes higher costs on social welfare rather than consumption taxes.
g. Friedman, 1969; Kimbrough,1986; Prescott,1987; Cole & Stockman, 1992; Schreft, 1992; Gillman, 1993; Gomme, 1993; Correia & Teles, 1996; Dotsey & Ireland, 1996; Aiyagari, Braun & Eckstein, 1998; Wu & Zhang, 1998, 2000; Lucas, 2000; Erosa & Ventura, 2002).
The budget constraint of the representative household is given by −1(݅) Π + −1−1(݅) + ℎ(݅) + −1(݅) + (݅) + (1 െ )−1(݅) Π (5) = (1 + ) (݅) + (݅) + (݅) + (݅) ∀ > 0; where: denotes the nominal value of (risk free) bonds holdings which pay a one-period nominal (net) interest rate , and is the tax on consumption and face on the cash-in-advance constraint −1(݅) Π + −1(݅) + (i) ≥ (1 + )(݅) + (݅) (6) Π By stating the problem in terms of the Lagrangian, the households choose , ℎ , , and in order to maximize utility function: ∞ 1−∅(݅) ℎ1+(݅) 0 ∑( െ 1െ∅ 1+ ) ୀ0 where is the time t conditional expectations operator, ∈ (0,1) is the subjective discount factor, ∅ > 0 and > 0 are, respectively, the coefficient of risk aversion and the inverse of Frisch labour supply elasticity.
Benchmark Results According to the model, we have calculated the welfare cost based on the different annual inflation rates.
Table 3: Steady states and welfare costs of inflation for the benchmark model Annual inflation rate C ∆ ∆ 0% 5% 10% 15% 0.
989 Source: Researchers Computations Table 4: Steady States and Welfare Costs of Inflation for the Benchmark Model with Government Expenditure Annual inflation rate C ∆Cwelfare ∆Cwelfare C 0% 5% 10% 15% 0.
Conclusion In the present paper, we studied the welfare cost of inflation in a new Keynesian DSGE model.