In this paper using specifying the real money balances, derived the equations of welfare cost of inflation in consumer surplus and compensating variation method, and using annual data over the period 1978 to 2010 estimates the welfare cost of inflation in Iran.
The results indicate that for the semi-log (log-log) specification, estimated using the consumer surplus approach, an increase in the inflation rate from 1 percent to 30 percent increase the welfare cost from 0.038 (0.033) percent of GDP to 3.52 (5.76) percent of GDP. For the log-log specification, estimated using the compensating variation method, an increase in the inflation rate from 1 percent to 30 percent increase the welfare cost from 0.033 to 5.9 percent of GDP
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