The Research On Urban-rural Differences Of Inflation Welfare Cost

Since the reform and opening up, China's economy has maintained a rapid growth. But it's also accompanied by inflation. Inflation reduces residents' real income, shrinks assets, and decreases the level of residents' welfare. Therefore, inflation leads to welfare cost, which means the efficiency losses of economic individuals when they are forced to change the economic behavior of currency holdings caused by inflation. Welfare cost of inflation can reflect the actual impact of inflation on the economic life of the residents. We need to measure the welfare cost of inflation residents bear accurately, so as to find out an effective way to improve the residents' welfare.Based on the above analysis, the paper combs and analyzes the currency function and the evolution of Money-in-Utility theory. With the traditional and modern monetary theory on micro foundation, this paper analyzes partial equilibrium measurement of inflation welfare cost based on the traditional money demand theory. The same has been done to be general equilibrium measurement of welfare cost based on modern monetary theory. All these lead to the establishment of the theory framework and measurement method. Combined with the unique urban-rural dual economic structure of our country, we can carry out in-depth study of the differences of inflation welfare cost between urban and rural areas.This paper focuses on the consumer surplus theory of money, Money-in-Utility theory and the Cash-in-Advance theory in the theoretical analysis. It analyzes the conducting relationship of money demand and money utility, and finally improves the measurement of inflation welfare cost according to China's reality. In empirical research, with annual panel data of provinces, it gets the regression results of money demand function which is divided into urban and rural areas. With the differences in inflation rates and per capita disposable income, The results indicate that, under mild inflation welfare cost in rural area is larger than that in urban area, but in the higher inflation rate it goes to the opposite. And the inter-provincial analysis indicates that urban-rural differences become greater in economically underdevelopmented areas. Based on these results, the paper is meant to find out the main reason causing urban-rural differences. It proposes appropriate policy suggestions on how to formulate policy between urban and rural differences and jointly reduce the welfare cost of inflation for urban and rural residents toward the goal of narrowing urban-rural differences.