The Redistributive Effects of Inflation: an International Perspective

Paola Boel

No 274, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)

Abstract: 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.

Keywords: Money; Heterogeneity; Calibration; Welfare Cost of Inflation (search for similar items in EconPapers)
JEL-codes: E40 E50 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2013-09-01, Revised 2017-02-01
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:rbnkwp:0274

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