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Heterogeneity, decentralized trade, and the long-run real effects of inflation

Gu Jin and Tao Zhu ()

Journal of Economic Theory, 2022, vol. 201, issue C

Abstract: Real effects of long-run inflation are studied in a standard matching model of money. Depending on the underlying policy, inflation can increase output but decrease ex ante social welfare or can do the opposite. Inflation makes the distribution of wealth more concentrated at the very top. When facing a potential policy change, the poor are much more sensitive to which policy may be adopted than the rich. Decentralized trade plays a critical role in these findings by amplifying the individual risk on labor income earning.

Keywords: Heterogeneity; Bilateral Bargaining; Inflation; Inequality; Welfare (search for similar items in EconPapers)
JEL-codes: E31 E40 E50 (search for similar items in EconPapers)
Date: 2022
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Working Paper: Heterogeneity, Decentralized Trade, and the Long-run Real Effects of Inflation (2020) Downloads
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DOI: 10.1016/j.jet.2022.105439

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