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Preference Heterogeneity, Inflation, and Welfare

Michael Curran () and Scott Dressler ()

No 40, Villanova School of Business Department of Economics and Statistics Working Paper Series from Villanova School of Business Department of Economics and Statistics

Abstract: This paper assesses the welfare implications of long-run inflation in an environment with essential money, a competing illiquid asset, and potential ex-ante heterogeneity of households with respect to their behavioral measures of risk aversion and elasticity of intertemporal substitution. The results show that the relative liquidity position of households’ portfolio as well as potential inter-cohort transfers of resources can deliver fewer welfare costs to inflation than has been previously reported, and in some instances net welfare benefits to low levels of positive inflation. These results hold in versions of the model calibrated to both US and euro area data.

Keywords: Inflation; Welfare; Recursive Preferences (search for similar items in EconPapers)
JEL-codes: E21 E41 E50 (search for similar items in EconPapers)
Date: 2019-02
New Economics Papers: this item is included in nep-dge, nep-mac, nep-mon and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:vil:papers:40

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