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Heterogeneity, decentralized trade, and the long-run real effects of inflation

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  • Jin, Gu
  • Zhu, Tao

Abstract

Real effects of long-run inflation are studied in a standard matching model of money. Depending on the underlying policy, inflation can increase output but decrease ex ante social welfare or can do the opposite. Inflation makes the distribution of wealth more concentrated at the very top. When facing a potential policy change, the poor are much more sensitive to which policy may be adopted than the rich. Decentralized trade plays a critical role in these findings by amplifying the individual risk on labor income earning.

Suggested Citation

  • Jin, Gu & Zhu, Tao, 2022. "Heterogeneity, decentralized trade, and the long-run real effects of inflation," Journal of Economic Theory, Elsevier, vol. 201(C).
    • Handle: RePEc:eee:jetheo:v:201:y:2022:i:c:s0022053122000291
    DOI: 10.1016/j.jet.2022.105439
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    More about this item

    Keywords

    Heterogeneity; Bilateral Bargaining; Inflation; Inequality; Welfare;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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