 Liquidity, Capital Pledgeability and Inflation RedistributionPaola Boel, DÃaz, Julián P. and Daria Finocchiaro No 22152, CEPR Discussion Papers from Centre for Economic Policy Research Abstract: We study the redistributive effects of expected inflation in a microfounded monetary model with heterogeneous discount factors and collateralized debt. This heterogeneity generates borrowing, lending, and a tractable distribution of money and capital holdings in equilibrium. Redistribution arises even when inflation is fully anticipated and nominal lending rates adjust accordingly, because inflation affects capital accumulation and, through collateral constraints, borrowing capacity. We show that inflation imposes larger welfare costs on lenders than on borrowers, acting as a progressive tax. While inflation always reduces aggregate capital, it can generate a Mundell–Tobin effect for lenders---raising both their capital holdings and wealth inequality---when capital has a broad productive role in the economy and loan-to-value ratios are sufficiently high. Collateralization, by contrast, reduces wealth inequality by inducing borrowers to accumulate more capital. Keywords: Money; Inequality; Collateral constraint; Welfare cost of inflation (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:cpr:ceprdp:22152 Ordering information: This working paper can be ordered from Access Statistics for this paper More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK. |
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