Who Pays for Disinflation? Disinflationary Monetary Policy and the Distribution of Income

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Who Pays for Disinflation? Disinflationary Monetary Policy and the Distribution of Income

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Willem Thorbecke

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Willem Thorbecke

Abstract

Using theoretical predictions, econometric results, and the example of the Volcker disinflation, Thorbecke establishes that through disinflation's burden on the durable goods and construction industries, small firms, and low-wage workers and its benefits to bond market investors, it effects a redistribution of wealth from the poor to the rich. Because of this distributional consequence, he argues, engineering a disinflationary recession now to wring more inflation out of the economy would be inappropriate. On the contrary, with inflation as low as it is and with upward pressure on wages that could trigger a rise in inflation also low, now is the time for the Federal Reserve to let the economy grow--to seek policies that promote distributive justice and that help those individuals most at risk for shrinking income.

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Paper provided by Levy Economics Institute, The in its series Economics Public Policy Brief Archive with number 38.

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This paper has been announced in the following NEP Reports:

NEP-ALL-2001-08-30 (All new papers)
NEP-MON-2001-08-30 (Monetary Economics)

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