Impact of Inflation on Household’s Saving within the Framework of Expenditure System

Mohsenirad, Saman | 2014

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  1. Type of Document: M.Sc. Thesis
  2. Language: Farsi
  3. Document No: 46729 (44)
  4. University: Sharif University of Technology
  5. Department: Management and Economics
  6. Advisor(s): Nili, Masoud
  7. Abstract:
  8. In this thesis the impact of inflation on urban household saving is investigated. For calculating sensitivity of saving respect to price changing of different groups of commodities, firstly we divided household cost to two separated groups of durable and nondurable and then by defining total income as summation of monetary and nonmonetary income of households, We consider saving as total income minuses nondurable consumption. Finally we estimated the “Extended Linear Expenditure System” model base on the prepared data. Since inflation is result of unequal changes in prices of goods and services, the approach of expenditure system allows us to assess unequal changes in prices for eight separated groups of goods and services. Outcomes of this thesis show that a ten percent increase in the level of price of all consumption goods and services – which imply ten percent inflation – result in forty five percent decrease in urban households saving. But if the inflation is not because of equal increase in the prices of all commodities, then relative prices will change as a consequence of inflation. In this situation the most influential impact on saving concerns to “Foods and Beverages” and “Housing costs”. Moreover outcomes of the model concern to different income quintiles, reveal that firstly, saving rate is positively related to level of household income and secondly, absolute value of saving elasticity respect to prices will decrease via an increase in income, in other words, inflation has a weaker diminishing impact on the wealthier household rather than those who are poor
  9. Keywords:
  10. Income Elasticity ; Inflation ; Price Elasticity ; Saving Behavior ; Extended Lineur Expenditure System ; Income Quintiles

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