Are Inflationary Shocks Regressive? A Feasible Set Approach

Felipe N. Del Canto, John R. Grigsby, Eric Qian and Conor Walsh

No 31124, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We develop a framework to measure the welfare impact of inflationary shocks throughout the distribution. The first-order impact of a shock is summarized by the induced movements in agents' feasible sets: their budget constraint and borrowing constraints. To measure this impact, we combine estimated impulse response functions with micro-data on household consumption bundles, asset holdings and labor income for different US households. We find that inflationary oil shocks are regressive, but monetary expansions are progressive, and there is substantial heterogeneity throughout the life cycle. In both cases, the dominant channel is the effect of the shock on asset prices, not movements in goods prices or labor income.

JEL-codes: E2 E30 E50 (search for similar items in EconPapers)
Date: 2023-04
New Economics Papers: this item is included in nep-mon
Note: EFG ME
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