Optimal Inflation Rate Measurement for Minimizing Economic Inequality: The Dynamic Stochastic General Equilibrium Approach
محورهای موضوعی : Financial EconomicsAlireza Azizi 1 , Hashem Zare 2 , Abbas Aminifard 3 , Jalil Khodaparast Shirazi 4
1 - Department of Economics, Shiraz Branch, Islamic Azad University, Shiraz, Iran
2 - Department of Economic, Shiraz Branch, Islamic Azad University, Shiraz, Iran
3 - Department of Economic, Shiraz Branch, Islamic Azad University, Shiraz, Iran
4 - Department of Economic, Shiraz Branch, Islamic Azad University, Shiraz, Iran
کلید واژه: Optimal Inflation Rate, Distribution of Income, Dynamic Stochastic General Equilibrium(DSGE),
چکیده مقاله :
The equitable distribution of income is considered as a development indicator in countries. Thus it is required to identify factors impacting the equitable distribution of income to make suitable policies to improve it. The present study aims to determine the optimal inflation rate in order to minimize income inequality by using the dynamic stochastic general equilibrium (DSGE) method in Iran during 1997-2017. The results revealed the optimal inflation rate to be 3.74%. An increase or reduction in the optimal inflation rate of 3.74% enhances income inequality. Thus, the government should target the inflation rate in its policies to achieve minimum inequality. Hence, inequality fluctuations (rises and declines) will be probable.
The equitable distribution of income is considered as a development indicator in countries. Thus it is required to identify factors impacting the equitable distribution of income to make suitable policies to improve it. The present study aims to determine the optimal inflation rate in order to minimize income inequality by using the dynamic stochastic general equilibrium (DSGE) method in Iran during 1997-2017. The results revealed the optimal inflation rate to be 3.74%. An increase or reduction in the optimal inflation rate of 3.74% enhances income inequality. Thus, the government should target the inflation rate in its policies to achieve minimum inequality. Hence, inequality fluctuations (rises and declines) will be probable.
[1] Eslami, S., reviewing the effects of some macroeconomic variables on income gap (cost), Quarterly of Financial and Economic Policies, 2014; 3 (7): 31-56.
[2] Abounouri, E., Effects of macroeconomic indexes on income distribution in Iran, Economic Research Magazine, 1997; 51.
[3] Abounouri, A., Mofatteh, S., and Parhizigashti, H., Analyzing the effects of inflation on income distribution in Iran: a comparative analysis of rural and urban regions in Iran, Quarterly of Economic Sciences, 2010; 4(13): 77-96.
[4] Ahmadian, A., Modeling bank run in the framework of DSGE for Iran, Science-research Magazine of Economic Policy-making, 2015; 7(14).
[5] Amini, A., Haji, M., Estimating the time series of capital balance in the economy of Iran during 2002-2008, Planning and Budget Magazine, 2005; 19: 53-86.
[6] Bakhshidastgerdi, R., Sheykhansari, M., Effects of commercial banks and population growth on optimal inflation in Sidrauski’s model for the economy of Iran, Quarterly of quantitative economy (former economic investigations magazine), 2015; 12(13): 117-140.
[7] Tashkini, A., Afzali, H., measuring optimal inflation: a case study of Iran’s economy, Quarterly of Economic Studies and Policies, 2011; 19(59):101-128.
[8] Zakerhanji, H. and Mehran, F., economic growth and income inequality in Iran, Statistical Center of Iran, National Calculations Office, 1977.
[9] Tavakolian, H., Investigating a new Keynesian Phillips curve in the form of a DSGE model for Iran, Magazine of Economic Studies, 2012; 3: 1-22.
[10] Hajikhodazadeh, H., Analyzing Iran’s economy growth sources by using Ozawa-Lucas optimal growth pattern calibration, Master’s Thesis, Faculty of Economics and Management, University of Yazd, Yazd, Iran, 2012.
[11] Jalali, M., investigating and analyzing inequality variations in income distribution and their effects on inflation in Iran, Ravand Quarterly, 2016; 23(75): 45-66.
[12] Balcilar, M., Chang, S., Gupta, R. et al. The relationship between the inflation rate and inequality across U.S. states: a semiparametric approach. Qual Quant. 2018; 52: 2413–2425. Doi: 10.1007/s11135-017-0676-3
[13] Zaeri, M. and Nodari, K., Calculating the inflation welfare cost in Iran, Economic Strategy in Iran, 2013; 4: 39-70.
[14] Zibaei, H., Evaluating the contributions of factors determining income inequality and distribution in Iran, Scientific-promotional Magazine, 2005; 91: 29-68.
[15] Ramsey, F.P., A Mathematical Theory of Saving, Economic Journal, 1928; 38, 543-559. Doi:10.2307/2224098
[16] Shakeri, A., Jahangard, E., and Aghlami, S., The nonlinear impact of inflation on income inequality in Iran, Quarterly of Economic Studies (Sustainable Growth and Development), 2013; 13(4): 27-53.
[17] Sayyadi, M., Daneshjafari, D., Bahrami, J., and Raferi, M., Proposing a framework for optimally using oil revenues in Iran: A DSGE approach, Science-research Quarterly of Planning and Budget, 2015; 20(2): 21-58.
[18] Ebadatian, Z., Taghinejad, O., and Gilak-Hakimabadi, M., Optimal inflation rate in Iran: a final welfare cost solution, Master’s Thesis, University of Mazandaran, 2012.
[19] Asgari, A., An overview of inflation and income distribution in Iran, Monthly of Trade Studies, 1991; 51.
[20] Farahmandmanesh, A., and Armanmehr, M., Investigating the effects of income inequality among urban households in Iran with the Atkinson approach, Quarterly of Economic and Regional Development Studies, 2018; 15: 25-38.
[21] Komeyjani, A., and Mohammadzadeh, F., Effects of inflation on income distribution and compensating policies’ performance, Quarterly of Economic Studies and Policies, 2014; 22(69): 5-24.
[22] Gorji, Borhanipour, Effects of globalization on income distribution, Quarterly of Iran’s Economic Studies, 2008;10(33): 99-124.
[23] Golkhandan, A., Threshold effects of inflation on income inequality in Iran: The Smooth transition regression (STR) model, Economic Inquiries of Iran, 2016;13(25): 75-95.
[24] Hadizonouz, B., Poverty and income inequality in Iran, Quarterly of Social Welfare, 2010; 17: 35-48.
[25] Mirbagherihayyer, M., and Shokouhifard, S., Adaptive investigation of the effects of financial development on income distribution and poverty in selected Islamic countries: A panel data approach, Science-research Quarterly of Economic Growth and Development Studies, 2016; 25: 93-108.
[26] Nazari, R., Mazaheri, L., The relationship between inflation and income distribution in Iran, Political-Economic Quarterly, 2011; 284.
[27] Hadia, A. and Izadi, B., Investigating the effects of inflation in financial development effectiveness on economic growth in Iran, Quarterly of Economic Development Studies, 2014; 15: 45-72.
[28] Kafaei, S., and Moradbeygi, M. (2010), Inflation inequality in Iran in details, Economics Quarterly of Shahid Beheshti University, 1st year, No. 2, p. 31-51.
[29] Statistical Center of Iran ,2018.
[30] Lorenzo Menna, Patrizio Tirelli, Optimal inflation to reduce inequality, Review of Economic Dynamics, 2017; 24: 79-94, Doi: 10.1016/j.red.2017.01.004.
[31] Christina Romer and David Romer, Proceedings - Economic Policy Symposium - Jackson Hole, 1998; 159-201
[32] Zaker Hanjani, H., Income Inequality Measurement in Iran, refahj, 2007; 6(24): 83-104.
[33] Günter, C., McAdam, P., Straub, R., Tax reform and labourmarket performance in the euro area: A simulation-based analysis using the New Area-Wide Model, Journal of Economic Dynamics and Control, 2008; 32(8): 2543-2583. Doi: 10.1016/j.jedc.2007.09.007.
[34] John, H., Boyd, R., Levine, B., Smith, D., The impact of inflation on financial sector performance, Journal of Monetary Economics, 2001; 47(2): 221-248,Doi:10.1016/S0304-3932(01)00049-6.
[35] Huybens, E., Smith, B., Inflation, Financial Markets and Long-Run Real Activity, Journal of Monetary Economics, 1999; 43: 283-315. Doi:10.1016/S0304-3932(98)00060-9
[36] Huybens, E., Smith, Bruce D., Financial Market Frictions, Monetary Policy, and Capital Accumulation in a Small Open Economy, Journal of Economic Theory, Elsevier, 1998; 81(2): 353-400,
[37] Rousseau, Peter L., Yilmazkuday, H., Inflation, financial development, and growth: A trilateral analysis, Economic Systems, Elsevier, 2009; 33(4): 310-324.
[38] Martin, J., Bailey, The Welfare Cost of Inflationary Finance, Journal of Political Economy, 1956; 64(2), Doi: abs/10.1086/257766
[39] Hadian, E., Izady, B. Determining the optimal rate of housing facilities and investigating its role on the link between facilities and the housing price index in Iran. Urban Economics, 2020; 5(2): 113-122. Doi: 10.22108/ue.2022.131969.1201
[40] Deyshappriya, NR., The causality direction of the stock market–growth nexus: application of GMM dynamic panel data and the panel ganger non-causality tests. Margin: The Journal of Applied Economic Research. 2016 Nov; 10(4): 446-64.
[41] Monnin, P., Inflation and Income Inequality in Developed Economies, CEP Working Paper Series, June 2, 2014; Doi:10.2139/ssrn.2444710
[42] Thalassinos, Eleftherios Ioannis and Liapis, Konstantinos and Politis, Evangelos, Shipping Companies Profitability Measurement: A Panel Data Analysis , March 26, 2015. Doi:10.2139/ssrn.2693003
[43] Hitoshi, F., Nobuyuki, O., Hiroshi, U., Optimal inflation for Japan's economy, Journal of the Japanese and International Economies, 2008; 22(4): 439-475, ISSN 0889-1583, Doi:10.1016/j.jjie.2008.08.001
[44] Bulir, A., The impact of macroeconomic policies on the distribution of income, Annals of Public and Cooperative Economics, 2001 Jun; 72(2): 253-70.
[45] Bulir, MA. The price incentive to smuggle and the cocoa supply in Ghana, 1950-96. International Monetary Fund; 1998 Jun 1.
[46] Bulir, MA., Gulde, MA., Inflation and Income Distribution: Further Evidence on Empirical Links, International Monetary Fund; 1995 Aug 1.
[47] Parker, SK., Enhancing role breadth self-efficacy: the roles of job enrichment and other organizational interventions, Journal of applied psychology, 1998 Dec;83(6):835.
[48] Fiorino, N., Galli, E., An analysis of the determinants of corruption: Evidence from the Italian regions. Monograph Book. Doi:10.4337/9781782544302.00009
[49] Sahota, GS., Theories of personal income distribution: a survey, Journal of Economic Literature. 1978 Mar 1;16(1):1-55.
[50] Tower, J., Hsps and aging. Trends in Endocrinology & Metabolism. 2009; 20(5):216-22.
