The Redistributive Effects of Inflation and the Shape of Money Demand

Paola Boel ()

No 25, LWS Working papers from LIS Cross-National Data Center in Luxembourg

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.

Keywords: Money; Heterogeneity; Calibration; Welfare Cost of Inflation (search for similar items in EconPapers)
JEL-codes: E4 E5 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2017-07
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in Journal of Economic Dynamics and Control 90, (May 2018): 208-219

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Persistent link: https://EconPapers.repec.org/RePEc:lis:lwswps:25

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