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Inflation, nominal portfolios, and wealth redistribution in Canada

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  • Césaire A. Meh
  • Yaz Terajima

Abstract

This paper quantifies the redistributional effects of inflation in Canada that arise through the revaluation of nominal assets and liabilities. We find that the effects are non-trivial even for low inflation episodes. The main winners are young, middle-class households with mortgage debt. The government receives a windfall gain from its long-term debt. The old, the rich or the middle-aged, middle-class lose, largely owing to their holdings of bonds and non-indexed defined benefit pension assets. Finally, our Canada-U.S. comparison reveals that the extent of redistributions can be quite different even between countries of similar economic and legal environments.

Suggested Citation

  • Césaire A. Meh & Yaz Terajima, 2011. "Inflation, nominal portfolios, and wealth redistribution in Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 44(4), pages 1369-1402, November.
    • Handle: RePEc:cje:issued:v:44:y:2011:i:4:p:1369-1402
    DOI: 10.1111/j.1540-5982.2011.01678.x
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    1. Burnside, Craig & Eichenbaum, Martin & Rebelo, Sergio, 2006. "Government finance in the wake of currency crises," Journal of Monetary Economics, Elsevier, vol. 53(3), pages 401-440, April.
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    Cited by:

    1. Hatcher, Michael, 2014. "Indexed versus nominal government debt under inflation and price-level targeting," Journal of Economic Dynamics and Control, Elsevier, vol. 45(C), pages 126-145.
    2. Kryvtsov, Oleksiy & Shukayev, Malik & Ueberfeldt, Alexander, 2011. "Optimal monetary policy under incomplete markets and aggregate uncertainty: A long-run perspective," Journal of Economic Dynamics and Control, Elsevier, vol. 35(7), pages 1045-1060, July.
    3. Césaire A. Meh & Yaz Terajima, 2011. "Inflation, nominal portfolios, and wealth redistribution in Canada," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 44(4), pages 1369-1402, November.
    4. 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.
    5. 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.
    6. Garriga, Carlos & Kydland, Finn E. & Šustek, Roman, 2021. "MoNK: Mortgages in a New-Keynesian model," Journal of Economic Dynamics and Control, Elsevier, vol. 123(C).
    7. Césaire Meh & Yaz Terajima & David Xiao Chen & Thomas J. Carter, 2009. "Household Debt, Assets, and Income in Canada: A Microdata Study," Discussion Papers 09-7, Bank of Canada.
    8. Cao, Shutao & Meh, Césaire A. & Ríos-Rull, José-Víctor & Terajima, Yaz, 2021. "The welfare cost of inflation revisited: The role of financial innovation and household heterogeneity," Journal of Monetary Economics, Elsevier, vol. 118(C), pages 366-380.
    9. Mehdi El Herradi & Jakob Haan & Aurélien Leroy, 2023. "Inflation and the Income Share of the Rich: Evidence for 14 OECD Countries," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 69(1), pages 170-194, March.
    10. Michael, Hatcher, 2013. "Aggregate and welfare effects of long run inflation risk under inflation and price-level targeting," SIRE Discussion Papers 2013-19, Scottish Institute for Research in Economics (SIRE).
    11. Meh, Césaire A. & Ríos-Rull, José-Víctor & Terajima, Yaz, 2010. "Aggregate and welfare effects of redistribution of wealth under inflation and price-level targeting," Journal of Monetary Economics, Elsevier, vol. 57(6), pages 637-652, September.
    12. Mehdi el Herradi & Jakob de Haan & Aurélien Leroy, 2020. "Inflation and the Income Share of the Rich: Evidence for 12 OECD Countries," CESifo Working Paper Series 8203, CESifo.
    13. Gorodnichenko, Yuriy & Song, Jae & Stolyarov, Dmitriy, 2013. "Macroeconomic Determinants of Retirement Timing," IZA Discussion Papers 7744, Institute of Labor Economics (IZA).
    14. Rodrigo Lluberas & Juan Odriozola, 2015. "Inflation, currency depreciation and households balance sheet in Uruguay," Documentos de trabajo 2015009, Banco Central del Uruguay.
    15. Zhandos Ybrayev, 2022. "Distributional Consequences of Monetary Policy in Emerging Economies: Dollarization, Domestic Inflation, and Income Divergence," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 64(2), pages 186-210, June.
    16. Martin Kuncl & Alexander Ueberfeldt, 2021. "Monetary Policy and the Persistent Aggregate Effects of Wealth Redistribution," Staff Working Papers 21-38, Bank of Canada.

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    More about this item

    JEL classification:

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

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