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Understanding the distributional impact of long-run inflation

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Abstract

The impact of fully anticipated inflation is systematically studied in heterogeneous agent economies with an endogenous labor supply and portfolio choices. In stationary equilibrium, inflation nonlinearly alters the endogenous distributions of income, wealth, and consumption. Small departures from zero inflation have the strongest impact. Three features determine how inflation impacts distributions and welfare: financial structure, shock persistence, and labor supply elasticity. When agents can self-insure only with money, inflation reduces wealth inequality but may raise consumption inequality. Otherwise, inflation reduces consumption inequality but may raise wealth inequality. Given persistent shocks and an inelastic labor supply, inflation may raise average welfare.

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  • Gabriele Camera & YiLi Chien, 2012. "Understanding the distributional impact of long-run inflation," Working Papers 2012-058, Federal Reserve Bank of St. Louis.
  • Handle: RePEc:fip:fedlwp:2012-058
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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Understanding the distributional impact of long-run inflation
      by Christian Zimmermann in NEP-DGE blog on 2012-12-19 03:32:17

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    Cited by:

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    2. Kakar, Venoo, 2014. "On the Redistributional Effects of Long-Run Inflation in a Cash-in-Advance Economy," MPRA Paper 55687, University Library of Munich, Germany.
    3. Binder, Carola, 2019. "Inequality and the inflation tax," Journal of Macroeconomics, Elsevier, vol. 61(C), pages 1-1.
    4. 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.
    5. Mehmet Balcilar & Shinhye Chang & Rangan Gupta & Stephen M. Miller, 2018. "The relationship between the inflation rate and inequality across U.S. states: a semiparametric approach," Quality & Quantity: International Journal of Methodology, Springer, vol. 52(5), pages 2413-2425, September.
    6. Michael Patrick Curran & Scott J. Dressler, 2019. "Preference Heterogeneity, Inflation, and Welfare," Villanova School of Business Department of Economics and Statistics Working Paper Series 40, Villanova School of Business Department of Economics and Statistics.
    7. Hongfei Sun & Chenggang Zhou, 2018. "Monetary and fiscal policies in a heterogeneous‐agent economy," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 51(3), pages 747-783, August.
    8. Paola Boel, 2017. "The Redistributive Effects of Inflation and the Shape of Money Demand," LWS Working papers 25, LIS Cross-National Data Center in Luxembourg.
    9. YiLi Chien & Yi Wen, 2017. "Optimal Ramsey Capital Income Taxation —A Reappraisal," Working Papers 2017-24, Federal Reserve Bank of St. Louis.

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    Keywords

    Inflation (Finance);

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