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Aggregate and welfare effects of redistribution of wealth under inflation and price-level targeting

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  • Meh, Césaire A.
  • Ríos-Rull, José-Víctor
  • Terajima, Yaz

Abstract

An unanticipated rise in the price level redistributes wealth from lenders to borrowers. Its size depends on the monetary policy regime, as inflation targeting (IT) and price-level targeting (PT) have different implications for the price-level path following price-level movements. The effects of an unexpected 1% price-level increase are measured and assessed under both regimes. Overall, the redistribution of wealth and the implied aggregate and welfare effects are larger under IT than they are under PT. The youngest, the poorest, and the government gain at the expense of the rest of the population and, when the government gain is given to households as lump-sum transfers, the effects on GDP are negative and long-lasting.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 57 (2010)
Issue (Month): 6 (September)
Pages: 637-652

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Handle: RePEc:eee:moneco:v:57:y:2010:i:6:p:637-652

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Web page: http://www.elsevier.com/locate/inca/505566

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  1. Drolet, Marie & Morissette, Rene, 1997. "Working More? Working Less? What Do Canadian Workers Prefer?," Analytical Studies Branch Research Paper Series 1997104e, Statistics Canada, Analytical Studies Branch.
  2. Matthias Doepke, . "Inflation as a Redistribution Shock: Effects on Aggregates and Welfare," UCLA Economics Online Papers 412, UCLA Department of Economics.
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  7. Steve Ambler, 2007. "Price-Level Targeting and Stabilization Policy: A Review," Discussion Papers 07-11, Bank of Canada.
  8. Erosa, Andres & Ventura, Gustavo, 2002. "On inflation as a regressive consumption tax," Journal of Monetary Economics, Elsevier, vol. 49(4), pages 761-795, May.
  9. Bach, G L & Stephenson, James B, 1974. "Inflation and the Redistribution of Wealth," The Review of Economics and Statistics, MIT Press, vol. 56(1), pages 1-13, February.
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  12. Agathe Côté, 2007. "Price-Level Targeting," Discussion Papers 07-8, Bank of Canada.
  13. Allan M. Maslove & J. C. R. Rowley, 1975. "Inflation and Redistribution," Canadian Journal of Economics, Canadian Economics Association, vol. 8(3), pages 399-409, August.
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