EconPapers    
Economics at your fingertips  
 

THE WELFARE COST OF INFLATION RISK UNDER IMPERFECT INSURANCE

Olivier Allais, Yann Algan (), Edouard Challe () and Xavier Ragot ()
Additional contact information
Olivier Allais: Laboratoire de recherche sur la Consommation - INRA - Institut National de la Recherche Agronomique

PSE Working Papers from HAL

Abstract: What are the costs of inflation fluctuations and who bears those costs? In this paper, we investigate this question by means of a quantitative incomplete-market, heterogenous-agent model wherein households hold real and nominal assets and are subject to both idiosyncratic labor income shocks and aggregate inflation risk. A key feature of our analysis is a nonhomothetic speci cation for households' preferences towards money and consumption goods. Unlike traditional speci cations, ours allows the model to reproduce the broad features of the distribution of monetary assets (in addition to being consistent with the distribution of nonmonetary assets). Inflation risk is found to generate signifi cant welfare losses for most households, i.e., between 1 and 1.5 percent of permanent consumption. The loss is small or even negative for households at the very top of the productivity and/or wealth distribution.

Keywords: Money-in-the-utility; incomplete markets; inflation risk; welfare. (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ias, nep-mac and nep-pbe
Date: 2015-05-27
Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01157168
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://hal.archives-ouvertes.fr/hal-01157168/document (application/pdf)

Related works:
Working Paper: The Welfare Cost of Inflation Risk Under Imperfect Insurance (2015) Downloads
Working Paper: The Welfare Cost of Inflation Risk Under Imperfect Insurance (2015) Downloads
Working Paper: The Welfare Cost of Inflation Risk Under Imperfect Insurance (2015) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:psewpa:hal-01157168

Access Statistics for this paper

More papers in PSE Working Papers from HAL
Bibliographic data for series maintained by CCSD ().

 
Page updated 2020-01-17
Handle: RePEc:hal:psewpa:hal-01157168