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Real effects of inflation through the redistribution of nominal wealth

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  • Matthias Doepke
  • Martin Schneider

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 U.S. 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 favors 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.

Suggested Citation

  • Matthias Doepke & Martin Schneider, 2005. "Real effects of inflation through the redistribution of nominal wealth," Staff Report 355, Federal Reserve Bank of Minneapolis.
    • Handle: RePEc:fip:fedmsr:355
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    Cited by:

    1. Tille, Cédric, 2008. "Financial integration and the wealth effect of exchange rate fluctuations," Journal of International Economics, Elsevier, vol. 75(2), pages 283-294, July.
    2. Sims, Christopher A., 2008. "Improving monetary policy models," Journal of Economic Dynamics and Control, Elsevier, vol. 32(8), pages 2460-2475, August.
    3. Matthias Doepke & Martin Schneider, 2005. "Real effects of inflation through the redistribution of nominal wealth," Staff Report 355, Federal Reserve Bank of Minneapolis.
    4. Arkadiusz Sieron, 2017. "Inflation and Income Inequality," Prague Economic Papers, Prague University of Economics and Business, vol. 2017(6), pages 633-645.
    5. repec:prg:jnlpep:v:preprint:id:630:p:1-13 is not listed on IDEAS

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    More about this item

    Keywords

    Wealth; Inflation (Finance);

    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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