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The Redistributive Effects of Inflation: an International Perspective

Listed author(s):
  • Boel, Paola

    ()

    (Monetary Policy Department, Central Bank of Sweden)

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.

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File URL: http://www.riksbank.se/Documents/Rapporter/Working_papers/2013/rap_wp274_170222_revised.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. Scott J. Dressler, 2009. "Money Holdings, Inflation, and Welfare in a Competitive Market," Villanova School of Business Department of Economics and Statistics Working Paper Series 2, Villanova School of Business Department of Economics and Statistics.
  2. 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.
  3. Subramanian S. Sriram, 2001. "A Survey of Recent Empirical Money Demand Studies," IMF Staff Papers, Palgrave Macmillan, vol. 47(3), pages 1-3.
  4. Jonathan Chiu & Miguel Molico, 2007. "Liquidity, Redistribution, and the Welfare Cost of Inflation," Staff Working Papers 07-39, Bank of Canada.
  5. Aleksander Berentsen & Gabriele Camera & Christopher Waller, "undated". "The Distribution of Money Balances and the Non-Neutrality of Money," IEW - Working Papers 220, Institute for Empirical Research in Economics - University of Zurich.
  6. 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.
  7. Jonathan Chiu & Miguel Molico, 2011. "Uncertainty, Inflation, and Welfare," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43, pages 487-512, October.
  8. Paola Boel & Gabriele Camera, 2009. "Financial Sophistication and the Distribution of the Welfare Cost of Inflation," Purdue University Economics Working Papers 1222, Purdue University, Department of Economics.
  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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