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Inflation and the Redistribution of Nominal Wealth

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  • Matthias Doepke
  • Martin Schneider

Abstract

This study quantitatively assesses the effects of inflation through changes in the value of nominal assets. It documents nominal asset positions in the United States across sectors and groups of households and estimates the wealth redistribution caused by a moderate inflation episode. The main losers from inflation are rich, old households, the major bondholders in the economy. The main winners are young, middle-class households with fixed-rate mortgage debt. Besides transferring resources from the old to the young, inflation is a boon for the government and a tax on foreigners. Lately, the amount of U.S. nominal assets held by foreigners has grown dramatically, increasing the potential for a large inflation-induced wealth transfer from foreigners to domestic households.

Suggested Citation

  • Matthias Doepke & Martin Schneider, 2006. "Inflation and the Redistribution of Nominal Wealth," Journal of Political Economy, University of Chicago Press, vol. 114(6), pages 1069-1097, December.
    • Handle: RePEc:ucp:jpolec:v:114:y:2006:i:6:p:1069-1097
    DOI: 10.1086/508379
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    References listed on IDEAS

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    1. Pierre-Olivier Gourinchas & Hélène Rey, 2007. "International Financial Adjustment," Journal of Political Economy, University of Chicago Press, vol. 115(4), pages 665-703, August.
    2. Guillermo Calvo & Mervyn King (ed.), 1998. "The Debt Burden and its Consequences for Monetary Policy," International Economic Association Series, Palgrave Macmillan, number 978-1-349-26077-5, March.
    3. Pierre-Olivier Gourinchas & Hélène Rey, 2007. "International Financial Adjustment," Journal of Political Economy, University of Chicago Press, vol. 115(4), pages 665-703, August.
    4. Matthias Doepke & Martin Schneider, 2006. "Aggregate Implications of Wealth Redistribution: The Case of Inflation," Journal of the European Economic Association, MIT Press, vol. 4(2-3), pages 493-502, 04-05.
    5. Shiller, Robert J. & Huston McCulloch, J., 1990. "The term structure of interest rates," Handbook of Monetary Economics, in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 1, chapter 13, pages 627-722, Elsevier.
    6. Bohn, Henning, 1988. "Why do we have nominal government debt?," Journal of Monetary Economics, Elsevier, vol. 21(1), pages 127-140, January.
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