Financial Sophistication and the Distribution of the Welfare Cost of Inflation

Paola Boel and Gabriele Camera

Purdue University Economics Working Papers from Purdue University, Department of Economics

Abstract: The welfare cost of anticipated inflation is quantified in a calibrated model of the U.S. economy that exhibits tractable equilibrium dispersion in wealth and earnings. Inflation does not generate large losses in societal welfare, yet its impact varies noticeably across segments of society depending also on the financial sophistication of the economy. If money is the only asset, then inflation hurts mostly the wealthier and more productive agents, while those poorer and less productive may even benefit from inflation. The converse holds in a more sophisticated financial environment where agents can insure against consumption risk with assets other than money.

Keywords: money; heterogeneity; friedman rule; trade frictions; calibration (search for similar items in EconPapers)
JEL-codes: E4 E5 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2009-06
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (31)

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Related works:
Journal Article: Financial sophistication and the distribution of the welfare cost of inflation (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:pur:prukra:1222

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