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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.

Suggested Citation

  • Meh, Césaire A. & Ríos-Rull, José-Víctor & Terajima, Yaz, 2010. "Aggregate and welfare effects of redistribution of wealth under inflation and price-level targeting," Journal of Monetary Economics, Elsevier, vol. 57(6), pages 637-652, September.
    • Handle: RePEc:eee:moneco:v:57:y:2010:i:6:p:637-652
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    More about this item

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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