 Inflation and income inequality in a Schumpeterian economy with heterogeneous wealth and skillsZhijie Zheng, Xi Wan and Chien-Yu Huang Economic Modelling, 2023, vol. 121, issue C Abstract: We explore the effects of monetary policy on innovation and income inequality in a scale-invariant endogenous growth model with heterogeneous households and a cash-in-advance (CIA) constraint on research and development investment. Household heterogeneity arises from unequal distributions of wealth and skill, giving rise to interest and labor income inequalities, respectively. We find that inflation unambiguously reduces innovation and economic growth, whereas its impact on income inequality can be positive, negative, or U-shaped. The relationship between inflation and income inequality depends on the relative dominance of wealth heterogeneity to skill heterogeneity and how the ratio of interest income to labor income responds to inflation. The model is calibrated to the US economy, and the numerical results support these implications on income inequality. Keywords: Income inequality; Inflation; Wealth and skill heterogeneity; Endogenous economic growth (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:121:y:2023:i:c:s0264999323000056 DOI: 10.1016/j.econmod.2023.106193 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
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