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The Redistributive Effects of Inflation and the Shape of Money Demand

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  • Paola Boel

Abstract

I quantify the redistributive effects of expected inflation in a sample of OECD countries using a microfounded model of money where agents differ in their consumption risk. The model is calibrated using harmonized wealth microdata from the Luxembourg Wealth Study. I find that inflation acts as a regressive tax in all countries considered. The magnitude of inflation’s redistributive impact, however, depends not only on wealth distribution but also, and importantly, on the shape of the money demand curve. A higher and less elastic money demand leads to more regressive effects of inflation, thus implying such effects are not necessarily stronger in a country with a more unequal wealth distribution.

Suggested Citation

  • 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.
    • Handle: RePEc:lis:lwswps:25
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    References listed on IDEAS

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    Cited by:

    1. Wei-Bin Zhang, 2020. "Inflation And Growth With The Miu Approach And The Equation Of Exchange," Social Sciences and Education Research Review, Department of Communication, Journalism and Education Sciences, University of Craiova, vol. 7(1), pages 45-71, July.

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    More about this item

    Keywords

    Money; Heterogeneity; Calibration; Welfare Cost of Inflation;
    All these keywords.

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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