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Real Effects of Inflation Through the Redistribution of Nominal Wealth

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Author Info
Doepke, Matthias
Schneider, Martin

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Abstract

This paper provides a quantitative assessment of the effects of inflation through changes in the value of nominal assets. We document nominal positions in the US across sectors as well as different groups of households, and estimate the redistribution brought about by a moderate inflation episode. Redistribution takes the form of 'ends-against-the-middle': the middle class gains at the cost of the rich and poor. In addition, inflation favours the young over the old, and hurts foreigners. A calibrated OLG model is used to assess the macroeconomic implications of this redistribution under alternative fiscal policy rules. We show that inflation-induced redistribution has a persistent negative effect on output, but improves the weighted welfare of domestic households.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5167.

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Date of creation: Aug 2005
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Handle: RePEc:cpr:ceprdp:5167

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Keywords: inflation redistribution welfare

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Find related papers by JEL classification:
D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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  1. Cedric Tille, 2005. "Financial integration and the wealth effect of exchange rate fluctuations," Staff Reports 226, Federal Reserve Bank of New York. [Downloadable!]
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