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The Redistributive Effects of Inflation: an International Perspective

Author

Listed:
  • Boel, Paola

    () (Monetary Policy Department, Central Bank of Sweden)

Abstract

We investigate the redistributive effects of expected inflation using a microfounded monetary model where agents differ in their degree of patience and consumption risk. Money is essential, but agents can insure against consumption risk also with bonds that offer some degree of inflation protection and that are traded in financial markets with limited participation. As long as the extent of disparities in discount factors is limited, agents hold both assets in equilibrium though in different quantities according to their type. The model is then calibrated using harmonized microdata from the Luxembourg Wealth Study for a subsample of OECD countries. We find inflation does not necessarily act as a regressive tax. Indeed, the magnitude and even the direction of inflation's redistributive effects depend not only on wealth distribution, but also on bonds' real returns and liquidity, in turn affected by the share of monetary trade.

Suggested Citation

  • Boel, Paola, 2013. "The Redistributive Effects of Inflation: an International Perspective," Working Paper Series 274, Sveriges Riksbank (Central Bank of Sweden), revised 01 Feb 2017.
  • Handle: RePEc:hhs:rbnkwp:0274
    as

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    File URL: http://www.riksbank.se/Documents/Rapporter/Working_papers/2013/rap_wp274_170222_revised.pdf
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    References listed on IDEAS

    as
    1. Aleksander Berentsen & Gabriele Camera & C hristopher W aller, 2005. "The Distribution Of Money Balances And The Nonneutrality Of Money," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(2), pages 465-487, May.
    2. 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, May.
    3. Pedro 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.
    4. 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.
    5. Paul Gomme, 1998. "Canada's money targeting experiment," Economic Commentary, Federal Reserve Bank of Cleveland, issue Feb.
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    7. 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.
    8. Chiu, Jonathan & Molico, Miguel, 2010. "Liquidity, redistribution, and the welfare cost of inflation," Journal of Monetary Economics, Elsevier, vol. 57(4), pages 428-438, May.
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    10. 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.
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    More about this item

    Keywords

    Money; Heterogeneity; Calibration; Welfare Cost of Inflation;

    JEL classification:

    • 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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