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Inflation and Wealth Distribution

  • Burkhard Heer
  • Bernd Süssmuth

The effect of a permanent change of inflation on the distribution of wealth is analyzed in a general equilibrium OLG model that is calibrated with regard to the characteristics of the US economy. Poor agents accumulate savings predominantly in the form of money, while rich agents participate in the stock market and accumulate equity. Surprisingly, an increase of inflation results in a lower stock market participation rate; in addition, the distribution of wealth becomes more unequal, even though the quantitative effect is economically negligible. Furthermore, we show that the welfare costs of anticipated inflation are considerably lower than in Imrohoroglu (1992).

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 835.

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Date of creation: 2003
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Handle: RePEc:ces:ceswps:_835
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  17. Greenwood, Daphne, 1983. "An Estimation of U.S. Family Wealth and Its Distribution from Microdata, 1973," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 29(1), pages 23-44, March.
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  24. Javier Díaz-Giménez & Vincenzo Quadrini & José-Víctor Ríos-Rull, 1997. "Dimensions of inequality: facts on the U.S. distributions of earnings, income, and wealth," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 3-21.
  25. Annette Vissing-Jorgensen, 2002. "Towards an Explanation of Household Portfolio Choice Heterogeneity: Nonfinancial Income and Participation Cost Structures," NBER Working Papers 8884, National Bureau of Economic Research, Inc.
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  27. Budd, Edward C & Seiders, David F, 1971. "The Impact of Inflation on the Distribution of Income and Wealth," American Economic Review, American Economic Association, vol. 61(2), pages 128-38, May.
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