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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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    Cited by:

    1. 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.
    2. Gorodnichenko, Yuriy & Song, Jae & Stolyarov, Dmitriy, 2013. "Macroeconomic Determinants of Retirement Timing," IZA Discussion Papers 7744, Institute of Labor Economics (IZA).
    3. 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.
    4. 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.
    5. 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.
    6. 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.
    7. Kuncl, Martin & Ueberfeldt, Alexander, 2024. "Monetary policy and the persistent aggregate effects of wealth redistribution," Journal of Monetary Economics, Elsevier, vol. 144(C).
    8. Rodrigo Lluberas & Juan Odriozola, 2015. "Inflation, currency depreciation and households balance sheet in Uruguay," Documentos de trabajo 2015009, Banco Central del Uruguay.
    9. 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.
    10. 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.
    11. 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).
    12. 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.
    13. Christian A. Conrad, 2024. "The Impact of Inflation and a Real Interest Rate Gap on the Capital Market and Economic Development - Evidence from Two Behavioral Experiments," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 16(12), pages 1-15, December.
    14. 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.
    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. 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).
    17. 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.

    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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