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Real effects of inflation through the redistribution of nominal wealth

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Author Info
Matthias Doepke
Martin Schneider

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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 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.

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Paper provided by Federal Reserve Bank of Minneapolis in its series Staff Report with number 355.

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Date of creation: 2005
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Handle: RePEc:fip:fedmsr:355

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Keywords: Wealth ; Inflation (Finance);

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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  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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