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How does inflation affect different age groups?

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  • Hahn, Volker
  • Schürle, Annika

Abstract

We develop an overlapping-generations model with sticky wages and prices to study the socially optimal inflation rate in the long term. While sticky prices and firms’ productivity growth would yield a positive optimal inflation rate, we show that sticky wages, in combination with empirically plausible changes in productivity over workers’ lives, make moderate deflation optimal. We also study intergenerational conflicts and show that younger voters gain from lower inflation, whereas older voters prefer higher inflation.

Suggested Citation

  • Hahn, Volker & Schürle, Annika, 2025. "How does inflation affect different age groups?," Journal of Economic Dynamics and Control, Elsevier, vol. 180(C).
    • Handle: RePEc:eee:dyncon:v:180:y:2025:i:c:s0165188925001666
    DOI: 10.1016/j.jedc.2025.105200
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    Keywords

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    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

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