IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/105461.html
   My bibliography  Save this paper

Inflation heterogeneity and its impact on inequality: evidence from the United States

Author

Listed:
  • Tavares, Francisco

Abstract

Aggregate inflation measures such as the Consumer Price Index seek to capture the impact on households consumption possibilities of changes in prices over time and are generally assumed as representative of all consumers. This is only true if households have all the same consumption patterns. Based on household level microdata, we construct specific household baskets of consumption and calculate the inflation for each one. By comparing Plutocratic and Democratic indexes, and inflation between groups of income, we conclude that households experienced different inflation rates, with the poorer suffering more with the loss in the purchasing power. The potential impacts of these findings on Fiscal and Monetary Policy show that around 1.77 million households could be paying federal income taxes when they should not; Social Security benefits could be up to 9.70% higher for some households; Federal Funds Rates would be 0.8 percentage points higher, based on a Taylor type rule, if FED used a Democratic core inflation index.

Suggested Citation

  • Tavares, Francisco, 2021. "Inflation heterogeneity and its impact on inequality: evidence from the United States," MPRA Paper 105461, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:105461
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/105461/1/MPRA_paper_105461.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Bart Hobijn & Kristin Mayer & Carter Stennis & Giorgio Topa, 2009. "Household inflation experiences in the U.S.: a comprehensive approach," Working Paper Series 2009-19, Federal Reserve Bank of San Francisco.
    2. Pedro Brinca & Hans Holter & Miguel Faria-e-Castro & Miguel Ferreira, 2019. "The Nonlinear Effects of Fiscal Policy," 2019 Meeting Papers 934, Society for Economic Dynamics.
    3. Morne Oosthuizen, 2007. "Consumer Price Inflation across the Income Distribution in South Africa," Working Papers 07129, University of Cape Town, Development Policy Research Unit.
    4. Bart Hobijn & David Lagakos, 2005. "Inflation Inequality In The United States," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 51(4), pages 581-606, December.
    5. Argente, David & Lee, Munseob & Moreira, Sara, 2018. "Innovation and product reallocation in the great recession," Journal of Monetary Economics, Elsevier, vol. 93(C), pages 1-20.
    6. Michael J. Boskin, 1998. "Consumer Prices, the Consumer Price Index, and the Cost of Living," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 3-26, Winter.
    7. Robert T. Michael, 1975. "Variation Across Household in the Rate of Inflation," NBER Working Papers 0074, National Bureau of Economic Research, Inc.
    8. Mario Izquierdo & Eduardo Ley & Javier Ruiz-Castillo, 2003. "The Plutocratic Gap in the CPI: Evidence from Spain," IMF Staff Papers, Palgrave Macmillan, vol. 50(1), pages 1-7.
    9. Eleanor M. Page Snyder, 1961. "Cost of Living Indexes for Special Classes of Consumers," NBER Chapters, in: The Price Statistics of the Federal Goverment, pages 337-372, National Bureau of Economic Research, Inc.
    10. Hagemann, Robert P, 1982. "The Variability of Inflation Rates across Household Types," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 14(4), pages 494-510, November.
    11. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
    12. Xavier Jaravel, 2019. "The Unequal Gains from Product Innovations: Evidence from the U.S. Retail Sector," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(2), pages 715-783.
    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. Petr Janský & Pavel Hait, 2016. "Inflation Differentials among Czech Households," Prague Economic Papers, Prague University of Economics and Business, vol. 2016(1), pages 71-84.
    2. Ruiz-Castillo, Javier & Ley, Eduardo & Izquierdo, Mario, 2002. "Distributional aspects of the quality change bias in the CPI: evidence from Spain," Economics Letters, Elsevier, vol. 76(1), pages 137-144, June.
    3. Morne Oosthuizen, 2013. "Inflation Inequality In South Africa," Working Papers 13158, University of Cape Town, Development Policy Research Unit.
    4. Carlos Garcimartín & Jhonatan Astudillo & André Martínez, 2021. "Inflation and income distribution in Central America, Mexico, Panama, and the Dominican Republic," Review of Development Economics, Wiley Blackwell, vol. 25(1), pages 315-339, February.
    5. Alberto Cavallo, 2020. "Inflation with Covid Consumption Baskets," NBER Working Papers 27352, National Bureau of Economic Research, Inc.
    6. Kaplan, Greg & Schulhofer-Wohl, Sam, 2017. "Inflation at the household level," Journal of Monetary Economics, Elsevier, vol. 91(C), pages 19-38.
    7. Abildgren, Kim & Kuchler, Andreas, 2021. "Revisiting the inflation perception conundrum," Journal of Macroeconomics, Elsevier, vol. 67(C).
    8. Frederic Boissay & Fabrice Collard & Jordi Galí & Cristina Manea, 2021. "Monetary Policy and Endogenous Financial Crises," Working Papers 1308, Barcelona School of Economics.
    9. Collard, Fabrice & Boissay, Frédéric & Galì, Jordi & Manea, Cristina, 2021. "Monetary Policy and Endogenous Financial Crises," TSE Working Papers 21-1277, Toulouse School of Economics (TSE), revised Apr 2023.
    10. Okidi, John A. & Nsubuga, Vincent, 2010. "Inflation Differentials Among Ugandan Households: 1997 - 2007," Research Series 150482, Economic Policy Research Centre (EPRC).
    11. Biljana Jovanovic & Marko Josimovski, 2021. "Income-specific inflation rates and the effects of monetary policy: the case of North Macedonia," Working Papers 2021-01, National Bank of the Republic of North Macedonia.
    12. Steven F. Koch & Adl Bosch, 2009. "Inflation and the HouseholdTowards a Measurement of the Welfare Costs of Inflation," Working Papers 3488, South African Reserve Bank.
    13. Sutirtha Bandyopadhyay & Bharat Ramaswami, 2022. "The representative agent bias in cost of living indices," Bulletin of Economic Research, Wiley Blackwell, vol. 74(1), pages 155-178, January.
    14. Alessandra Cepparulo & Francesca Gastaldi & Paolo Liberati, 2010. "The distributional and welfare impact of inflation in Italy," Working Papers in Public Economics 134, University of Rome La Sapienza, Department of Economics and Law.
    15. Christoph Lauper & Giacomo Mangiante, 2021. "Monetary policy shocks and inflation inequality," Cahiers de Recherches Economiques du Département d'économie 21.02a, Université de Lausanne, Faculté des HEC, Département d’économie.
    16. Roberta Colavecchio & Ulrich Fritsche & Michael Graff, 2011. "Inflation Inequality in Europe," Macroeconomics and Finance Series 201102, University of Hamburg, Department of Socioeconomics.
    17. Okidi, John A. & Nsubuga, Vincent, 2010. "Inflation differentials among Ugandan household: 1997 - 2007," Research Reports 102497, Economic Policy Research Centre (EPRC).
    18. James Gorry & Dean Scrimgeour, 2018. "Using Engel Curves To Estimate Consumer Price Index Bias For The Elderly," Contemporary Economic Policy, Western Economic Association International, vol. 36(3), pages 539-553, July.
    19. Bart Hobijn & David Lagakos, 2005. "Inflation Inequality In The United States," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 51(4), pages 581-606, December.
    20. Ha,Jongrim & Ivanova,Anna & Ohnsorge,Franziska Lieselotte & Unsal Portillo Ocando,Derya Filiz, 2019. "Inflation : Concepts, Evolution, and Correlates," Policy Research Working Paper Series 8738, The World Bank.

    More about this item

    Keywords

    Inflation Consumer Price Index Price Indexes Personal Consumption Expenditure Price Index Consumption Patterns Consumer Expenditure Survey;

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:pra:mprapa:105461. 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: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.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.