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Price-Level Changes And The Redistribution Of Nominal Wealth Across The Euro Area

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  • Klaus Adam
  • Junyi Zhu

Abstract

We document the presence of sizable distributional effects from unexpected price level movements in the Euro Area (EA) using sectoral accounts and newly available data from the Household Finance and Consumption Survey. The EA as a whole is a net winner of unexpected price level increases, with Italy, Greece, Portugal and Spain being the biggest beneficiaries, and Belgium and Malta being the largest losers. Governments are net winners of inflation, while the household (HH) sector is a net loser in the EA as a whole. HHs in Belgium, Ireland, Malta and Germany incur the biggest per capita losses, while HHs in Finland and Spain turn out to be net winners of inflation. Considerable heterogeneity exists also within the HH sector: relatively young middle class HHs are net winners of inflation, while older and richer HHs are losers. As a result, wealth inequality in the EA decreases with unexpected inflation, although in some countries (Austria, Germany and Malta) inequality increases due to presence of relatively few young borrowing HHs. We document that HHs inflation exposure varies systematically across countries, with HHs in high inflation EA countries holding systematically lower nominal exposures.
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Suggested Citation

  • Klaus Adam & Junyi Zhu, 2016. "Price-Level Changes And The Redistribution Of Nominal Wealth Across The Euro Area," Journal of the European Economic Association, European Economic Association, vol. 14(4), pages 871-906, August.
  • Handle: RePEc:bla:jeurec:v:14:y:2016:i:4:p:871-906
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    File URL: http://hdl.handle.net/10.1111/jeea.2016.14.issue-4
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    References listed on IDEAS

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    1. Albanesi, Stefania, 2007. "Inflation and inequality," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 1088-1114, May.
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    Cited by:

    1. Michelacci, Claudio & Paciello, Luigi, 2017. "Ambiguous Policy Announcements," CEPR Discussion Papers 11754, C.E.P.R. Discussion Papers.
    2. Javier Villar Burke, 2016. "Stocks or flows? New thinking about monetary transmission through the lending channel," Working Papers 2016.04, International Network for Economic Research - INFER.
    3. repec:bfr:rueban:2018:55 is not listed on IDEAS
    4. Adam, Klaus & Tzamourani, Panagiota, 2016. "Distributional consequences of asset price inflation in the Euro Area," European Economic Review, Elsevier, vol. 89(C), pages 172-192.
    5. Hatcher, Michael, 2016. "Nominal GDP targeting and the tax burden," Discussion Paper Series In Economics And Econometrics 1604, Economics Division, School of Social Sciences, University of Southampton.
    6. Luigi Paciello & Claudio Michelacci, 2016. "Forward Misguidance," 2016 Meeting Papers 617, Society for Economic Dynamics.
    7. Sterk, Vincent & Tenreyro, Silvana, 2015. "The Transmission of Monetary Policy through Redistributions and Durable Purchases," CEPR Discussion Papers 10785, C.E.P.R. Discussion Papers.
    8. Galo Nuño & Carlos Thomas, 2016. "Optimal monetary policy with heterogeneous agents," Working Papers 1624, Banco de España;Working Papers Homepage.
    9. Michael Reiter & Philipp Hergovich, 2016. "Housing and the Redistributive Effects of Monetary Policy," 2016 Meeting Papers 1324, Society for Economic Dynamics.

    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance

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