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The Burden Of Unanticipated Inflation: Analysis Of An Overlapping-Generations Model With Progressive Income Taxation And Staggered Prices

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  • Heer, Burkhard
  • Maußner, Alfred

Abstract

In our dynamic optimizing sticky price model, agents are heterogenous with regard to their assets and their income. Unanticipated inflation redistributes income and wealth. In order to model the wealth distribution, we study a 60-period OLG model with aggregate uncertainty. A positive technology shock increases the concentration of wealth as measured by the Gini coefficient considerably. In particular, a one percent increase of the technology level results in a one percent increase of the Gini coefficient. An unexpected expansionary monetary policy is found to reduce the inequality of the wealth distribution. In addition, we find that the business cycle dynamics in the OLG model in response to both a technology shock and a monetary shock are different from those in the corresponding representative-agent model

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Bibliographic Info

Article provided by Cambridge University Press in its journal Macroeconomic Dynamics.

Volume (Year): 16 (2012)
Issue (Month): 02 (April)
Pages: 278-308

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Handle: RePEc:cup:macdyn:v:16:y:2012:i:02:p:278-308_00

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Cited by:
  1. Burkhard Heer, 2007. "On the Modeling of the Income Distribution Business Cycle Dynamics," CESifo Working Paper Series 1945, CESifo Group Munich.
  2. Burkhard Heer & Alfred Maußner, 2009. "Education Briefing: Computation of business-cycle models with the Generalized Schur method," Indian Growth and Development Review, Emerald Group Publishing, vol. 2(2), pages 173-182, September.
  3. Yann Algan & Xavier Ragot, 2010. "Monetary policy with Heterogeneous Agents and Borrowing Constraints," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(2), pages 295-316, April.
  4. Heer, Burkhard & Süssmuth, Bernd, 2013. "Tax bracket creep and its effects on income distribution," Working Papers 123, University of Leipzig, Faculty of Economics and Management Science.

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