IDEAS home Printed from https://ideas.repec.org/a/adr/anecst/y2020i138p1-20.html

The Welfare Cost of Inflation Risk under Imperfect Insurance

Author

Listed:
  • Olivier Allais
  • Yann Algan
  • Edouard Challe
  • Xavier Ragot

Abstract

What are the costs of inflation fluctuations and who bears those costs? In this paper, we investigate this question by means of a quantitative incomplete-market, heterogenous-agent model wherein households hold real and nominal assets and are subject to both idiosyncratic labor income shocks and aggregate inflation risk. Inflation risk is found to generate significant welfare losses for most households, i.e., between 1 and 1.5 percent of permanent consumption. The loss is small or even negative for households at the very top of the productivity and/or wealth distribution. A key feature of our analysis is a nonhomothetic specification for households' preferences towards money and consumption goods. Unlike traditional specifications, ours allows the model to reproduce the broad features of the distribution of monetary assets (in addition to being consistent with the joint distribution of nonmonetary assets and consumption.

Suggested Citation

  • Olivier Allais & Yann Algan & Edouard Challe & Xavier Ragot, 2020. "The Welfare Cost of Inflation Risk under Imperfect Insurance," Annals of Economics and Statistics, GENES, issue 138, pages 1-20.
    • Handle: RePEc:adr:anecst:y:2020:i:138:p:1-20
    DOI: 10.15609/annaeconstat2009.138.0001
    as

    Download full text from publisher

    File URL: https://www.jstor.org/stable/10.15609/annaeconstat2009.138.0001
    Download Restriction: no
    File URL: https://libkey.io/10.15609/annaeconstat2009.138.0001?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. is not listed on IDEAS
    2. Curran, Michael & Dressler, Scott J., 2020. "Preferences, inflation, and welfare," European Economic Review, Elsevier, vol. 130(C).

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:adr:anecst:y:2020:i:138:p:1-20. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Secretariat General or Laurent Linnemer (email available below). General contact details of provider: https://edirc.repec.org/data/ensaefr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.