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On the Redistributive Effects of Inflation: an International Perspective

  • Boel, Paola

    ()

    (Monetary Policy Department, Central Bank of Sweden)

I use a microfounded model of money to quantify the redistributive effects of expected inflation in a sample of OECD countries. In doing so, I address two quantitative issues. First, I pin down money demand rigorously, which implies accounting for the possibility of policy breaks. I show that this has significant implications for both the quality of the fit as well as the measurements' values. Second, I construct comparable estimates of wealth distribution across countries by using harmonized microdata from the Luxembourg Wealth Study. Two main results emerge from the analysis. First, in all countries considered inflation acts as a regressive tax. Second, the magnitude of such redistributive effects differs across countries and it depends not only on wealth distribution, but also on the curvature and the level of money demand for any given interest rate.

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File URL: http://www.riksbank.se/Documents/Rapporter/Working_papers/2013/rap_wp274_131127.pdf
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Paper provided by Sveriges Riksbank (Central Bank of Sweden) in its series Working Paper Series with number 274.

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Length: 34 pages
Date of creation: 01 Sep 2013
Date of revision: 01 Nov 2013
Handle: RePEc:hhs:rbnkwp:0274
Contact details of provider: Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden
Phone: 08 - 787 00 00
Fax: 08-21 05 31
Web page: http://www.riksbank.com/
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  1. Jonathan Chiu & Miguel Molico, 2007. "Liquidity, Redistribution, and the Welfare Cost of Inflation," Working Papers 07-39, Bank of Canada.
  2. Pere Gomis-Porqueras & Adrian Peralta-Alva & Christopher J. Waller, 2011. "Quantifying the shadow economy: measurement with theory," Working Papers 2011-015, Federal Reserve Bank of St. Louis.
  3. Aleksander Berentsen & Gabriele Camera & Christopher Waller, . "The Distribution of Money Balances and the Non-Neutrality of Money," IEW - Working Papers 220, Institute for Empirical Research in Economics - University of Zurich.
  4. Scott J. Dressler, 2011. "Money Holdings, Inflation, And Welfare In A Competitive Market," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(2), pages 407-423, 05.
  5. Subramanian S. Sriram, 2001. "A Survey of Recent Empirical Money Demand Studies," IMF Staff Papers, Palgrave Macmillan, vol. 47(3), pages 3.
  6. Boel, Paola & Camera, Gabriele, 2009. "Financial sophistication and the distribution of the welfare cost of inflation," Journal of Monetary Economics, Elsevier, vol. 56(7), pages 968-978, October.
  7. Jonathan Chiu & Miguel Molico, 2008. "Uncertainty, Inflation, and Welfare," Working Papers 08-13, Bank of Canada.
  8. Barry Z. Cynamon & Donald H. Dutkowsky & Barry E. Jones, 2006. "Redefining the Monetary Agggregates: A Clean Sweep," Eastern Economic Journal, Eastern Economic Association, vol. 32(4), pages 661-672, Fall.
  9. Shinobu Nakagawa & Yosuke Yasui, 2009. "A note on Japanese household debt: international comparison and implications for financial stability," BIS Papers chapters, in: Bank for International Settlements (ed.), Household debt: implications for monetary policy and financial stability, volume 46, pages 75-82 Bank for International Settlements.
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