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On the Redistributive Effects of Inflation: an International Perspective

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  • Boel, Paola

    ()
    (Monetary Policy Department, Central Bank of Sweden)

Abstract

I use a microfounded model of money to quantify the redistributive effects of expected inflation in a sample of OECD countries. In doing so, I address two quantitative issues. First, I pin down money demand rigorously, which implies accounting for the possibility of policy breaks. I show that this has significant implications for both the quality of the fit as well as the measurements' values. Second, I construct comparable estimates of wealth distribution across countries by using harmonized microdata from the Luxembourg Wealth Study. Two main results emerge from the analysis. First, in all countries considered inflation acts as a regressive tax. Second, the magnitude of such redistributive effects differs across countries and it depends not only on wealth distribution, but also on the curvature and the level of money demand for any given interest rate.

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File URL: http://www.riksbank.se/Documents/Rapporter/Working_papers/2013/rap_wp274_131127.pdf
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Bibliographic Info

Paper provided by Sveriges Riksbank (Central Bank of Sweden) in its series Working Paper Series with number 274.

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Length: 34 pages
Date of creation: 01 Sep 2013
Date of revision: 01 Nov 2013
Handle: RePEc:hhs:rbnkwp:0274

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Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Phone: 08 - 787 00 00
Fax: 08-21 05 31
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Web page: http://www.riksbank.com/
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Related research

Keywords: Money; Heterogeneity; Redistribution; Calibration; Welfare Cost of In ation;

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  1. Aleksander Berentsen & Gabriele Camera & Christopher Waller, . "The Distribution of Money Balances and the Non-Neutrality of Money," IEW - Working Papers, Institute for Empirical Research in Economics - University of Zurich 220, Institute for Empirical Research in Economics - University of Zurich.
  2. Boel, Paola & Camera, Gabriele, 2009. "Financial sophistication and the distribution of the welfare cost of inflation," Journal of Monetary Economics, Elsevier, Elsevier, vol. 56(7), pages 968-978, October.
  3. Scott J. Dressler, 2009. "Money Holdings, Inflation, and Welfare in a Competitive Market," Villanova School of Business Department of Economics and Statistics Working Paper Series, Villanova School of Business Department of Economics and Statistics 2, Villanova School of Business Department of Economics and Statistics.
  4. Jonathan Chiu & Miguel Molico, 2008. "Uncertainty, Inflation, and Welfare," Working Papers, Bank of Canada 08-13, Bank of Canada.
  5. Barry Z. Cynamon & Donald H. Dutkowsky & Barry E. Jones, 2006. "Redefining the Monetary Agggregates: A Clean Sweep," Eastern Economic Journal, Eastern Economic Association, Eastern Economic Association, vol. 32(4), pages 661-672, Fall.
  6. Chiu, Jonathan & Molico, Miguel, 2010. "Liquidity, redistribution, and the welfare cost of inflation," Journal of Monetary Economics, Elsevier, Elsevier, vol. 57(4), pages 428-438, May.
  7. Subramanian S. Sriram, 2001. "A Survey of Recent Empirical Money Demand Studies," IMF Staff Papers, Palgrave Macmillan, vol. 47(3), pages 3.
  8. Shinobu Nakagawa & Yosuke Yasui, 2009. "A note on Japanese household debt: international comparison and implications for financial stability," BIS Papers chapters, Bank for International Settlements, in: Bank for International Settlements (ed.), Household debt: implications for monetary policy and financial stability, volume 46, pages 75-82 Bank for International Settlements.
  9. Pere Gomis-Porqueras & Adrian Peralta-Alva & Christopher J. Waller, 2011. "Quantifying the shadow economy: measurement with theory," Working Papers, Federal Reserve Bank of St. Louis 2011-015, Federal Reserve Bank of St. Louis.
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