IDEAS home Printed from https://ideas.repec.org/p/imf/imfwpa/2016-132.html
   My bibliography  Save this paper

Inflation, Financial Developments, and Wealth Distribution

Author

Listed:
  • Wai-Yip Alex Ho
  • Chun-Yu Ho

Abstract

We find that from 1995 to 2002 in China, the dispersion of wealth decreased, the moneywealth ratio increased for all wealth levels and the aggregate money-output ratio increased. We develop a two-asset dynamic general equilibrium model in which households face a portfolio adjustment cost and a borrowing constraint. We find that financial development lowers the dispersion of wealth by reducing the precautionary motive of households. In addition, tight monetary policies increase the value of money and thus increase the moneywealth ratio for all wealth levels and the aggregate money-output ratio.

Suggested Citation

  • Wai-Yip Alex Ho & Chun-Yu Ho, 2016. "Inflation, Financial Developments, and Wealth Distribution," IMF Working Papers 2016/132, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2016/132
    as

    Download full text from publisher

    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=44065
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Tauchen, George, 1986. "Finite state markov-chain approximations to univariate and vector autoregressions," Economics Letters, Elsevier, vol. 20(2), pages 177-181.
    2. Amato, Jeffery D. & Gerlach, Stefan, 2002. "Inflation targeting in emerging market and transition economies: Lessons after a decade," European Economic Review, Elsevier, vol. 46(4-5), pages 781-790, May.
    3. Richard Blundell & Stephen Bond, 2000. "GMM Estimation with persistent panel data: an application to production functions," Econometric Reviews, Taylor & Francis Journals, vol. 19(3), pages 321-340.
    4. Bank for International Settlements, 2009. "Household debt: implications for monetary policy and financial stability," BIS Papers, Bank for International Settlements, number 46.
    5. Karen Kopecky & Richard Suen, 2010. "Finite State Markov-chain Approximations to Highly Persistent Processes," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(3), pages 701-714, July.
    6. S. Rao Aiyagari, 1994. "Uninsured Idiosyncratic Risk and Aggregate Saving," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(3), pages 659-684.
    7. Easterly, William & Fischer, Stanley, 2001. "Inflation and the Poor," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(2), pages 160-178, May.
    8. Demurger, Sylvie & Fournier, Martin & Li, Shi, 2006. "Urban income inequality in China revisited (1988-2002)," Economics Letters, Elsevier, vol. 93(3), pages 354-359, December.
    9. Terry Sicular & Yue Ximing & Björn Gustafsson & Li Shi, 2007. "The Urban–Rural Income Gap And Inequality In China," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 53(1), pages 93-126, March.
    10. Heer, Burkhard & Sussmuth, Bernd, 2007. "Effects of inflation on wealth distribution: Do stock market participation fees and capital income taxation matter?," Journal of Economic Dynamics and Control, Elsevier, vol. 31(1), pages 277-303, January.
    11. Chatterjee, Satyajit & Corbae, Dean, 1992. "Endogenous Market Participation and the General Equilibrium Value of Money," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 615-646, June.
    12. Erosa, Andres & Ventura, Gustavo, 2002. "On inflation as a regressive consumption tax," Journal of Monetary Economics, Elsevier, vol. 49(4), pages 761-795, May.
    13. Tauchen, George & Hussey, Robert, 1991. "Quadrature-Based Methods for Obtaining Approximate Solutions to Nonlinear Asset Pricing Models," Econometrica, Econometric Society, vol. 59(2), pages 371-396, March.
    14. Akyol, Ahmet, 2004. "Optimal monetary policy in an economy with incomplete markets and idiosyncratic risk," Journal of Monetary Economics, Elsevier, vol. 51(6), pages 1245-1269, September.
    15. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    16. Heaton, John & Lucas, Deborah J, 1996. "Evaluating the Effects of Incomplete Markets on Risk Sharing and Asset Pricing," Journal of Political Economy, University of Chicago Press, vol. 104(3), pages 443-487, June.
    17. Edward N. Wolff, 2006. "Changes in Household Wealth in the 1980s and 1990s in the United States," Chapters, in: Edward N. Wolff (ed.), International Perspectives on Household Wealth, chapter 4, Edward Elgar Publishing.
    18. Thorsten Beck & Asli Demirgüç-Kunt & Patrick Honohan, 2009. "Access to Financial Services: Measurement, Impact, and Policies," The World Bank Research Observer, World Bank, vol. 24(1), pages 119-145, February.
    19. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
    20. repec:bla:revinw:v:43:y:1997:i:4:p:381-99 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kim, Dong-Hyeon & Lin, Shu-Chin, 2023. "Income inequality, inflation and financial development," Journal of Empirical Finance, Elsevier, vol. 72(C), pages 468-487.
    2. Sunel, Enes, 2010. "On inflation, wealth inequality and welfare in emerging economies," MPRA Paper 25943, University Library of Munich, Germany.
    3. Adrien Auclert, 2019. "Monetary Policy and the Redistribution Channel," American Economic Review, American Economic Association, vol. 109(6), pages 2333-2367, June.
    4. Nils M. Gornemann & Keith Kuester & Makoto Nakajima, 2012. "Monetary policy with heterogeneous agents," Working Papers 12-21, Federal Reserve Bank of Philadelphia.
    5. Sunel, Enes, 2012. "Transitional Dynamics of Disinflation in a Small Open Economy with Heterogeneous Agents," MPRA Paper 39690, University Library of Munich, Germany.
    6. Anagnostopoulos Alexis & Tang Xin, 2015. "Evaluating linear approximations in a two-country model with occasionally binding borrowing constraints," The B.E. Journal of Macroeconomics, De Gruyter, vol. 15(1), pages 43-91, January.
    7. Korniotis, George & Bonaparte, Yosef & Kumar, Alok, 2020. "Income Risk and Stock Market Entry/Exit Decisions," CEPR Discussion Papers 15370, C.E.P.R. Discussion Papers.
    8. Ivan Vidangos, 2009. "Fluctuations in individual labor income: a panel VAR analysis," Finance and Economics Discussion Series 2009-09, Board of Governors of the Federal Reserve System (U.S.).
    9. Ichihiro UCHIDA & Yosuke TAKEDA & Daichi SHIRAI, 2012. "Technology and Capital Adjustment Costs: Micro evidence of automobile electronics in the auto-parts suppliers," Discussion papers 12001, Research Institute of Economy, Trade and Industry (RIETI).
    10. Kim, Dong-Hyeon & Lin, Shu-Chin, 2024. "Inflation and wealth inequality," Economic Analysis and Policy, Elsevier, vol. 82(C), pages 893-907.
    11. Heer, Burkhard & Sussmuth, Bernd, 2007. "Effects of inflation on wealth distribution: Do stock market participation fees and capital income taxation matter?," Journal of Economic Dynamics and Control, Elsevier, vol. 31(1), pages 277-303, January.
    12. Robert Kirkby, 2023. "Quantitative Macroeconomics: Lessons Learned from Fourteen Replications," Computational Economics, Springer;Society for Computational Economics, vol. 61(2), pages 875-896, February.
    13. Matteo Iacoviello, 2008. "Household Debt and Income Inequality, 1963–2003," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(5), pages 929-965, August.
    14. Dietmar Harhoff & Elisabeth Mueller & John Van Reenen, 2014. "What are the Channels for Technology Sourcing? Panel Data Evidence from German Companies," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 23(1), pages 204-224, March.
    15. Kathryn Rudie Harrigan & Maria Chiara Guardo & Bo Cowgill, 2017. "Multiplicative-innovation synergies: tests in technological acquisitions," The Journal of Technology Transfer, Springer, vol. 42(5), pages 1212-1233, October.
    16. Meschi, Elena & Taymaz, Erol & Vivarelli, Marco, 2011. "Trade, technology and skills: Evidence from Turkish microdata," Labour Economics, Elsevier, vol. 18(S1), pages 60-70.
    17. Abonazel, Mohamed R., 2016. "Bias Correction Methods for Dynamic Panel Data Models with Fixed Effects," MPRA Paper 70628, University Library of Munich, Germany.
    18. Francesco Bogliacino & Marco Vivarelli, 2012. "The Job Creation Effect Of R&D Expenditures," Australian Economic Papers, Wiley Blackwell, vol. 51(2), pages 96-113, June.
    19. Måns Söderbom & Francis Teal, 2003. "Openness and human capital as sources of productivity growth: An empirical investigation," CSAE Working Paper Series 2003-06, Centre for the Study of African Economies, University of Oxford.
    20. Lee, Grace H.Y. & Azali, M., 2010. "The endogeneity of the Optimum Currency Area criteria in East Asia," Economic Modelling, Elsevier, vol. 27(1), pages 165-170, January.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;
    ;
    ;
    ;
    ;
    ;
    ;
    ;
    ;
    ;
    ;
    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:imf:imfwpa:2016/132. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Akshay Modi (email available below). General contact details of provider: https://edirc.repec.org/data/imfffus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.