On the Redistributive Effects of Inflation: An International Perspective

Riksbank Research Paper Series No. 105

Sveriges Riksbank Working Paper Series No. 274

28 Pages Posted: 18 Dec 2013

See all articles by Paola Boel

Paola Boel

Sveriges Riksbank - Research Division

Date Written: November 2013

Abstract

I use a microfounded model of money to quantify the redistributive effects of expected inflation in a sample of OECD countries. In doing so, I address two quantitative issues. First, I pin down money demand rigorously, which implies accounting for the possibility of policy breaks. I show that this has significant implications for both the quality of the fit as well as the measurements’ values. Second, I construct comparable estimates of wealth distribution across countries by using harmonized microdata from the Luxembourg Wealth Study. Two main results emerge from the analysis. First, in all countries considered inflation acts as a regressive tax. Second, the magnitude of such redistributive effects differs across countries and it depends not only on wealth distribution, but also on the curvature and the level of money demand for any given interest rate.

Keywords: Money, Heterogeneity, Redistribution, Calibration, Welfare Cost of Inflation

JEL Classification: E4, E5

Suggested Citation

Boel, Paola, On the Redistributive Effects of Inflation: An International Perspective (November 2013). Riksbank Research Paper Series No. 105. Available at SSRN: https://ssrn.com/abstract=2350716 or http://dx.doi.org/10.2139/ssrn.2350716

Paola Boel (Contact Author)

Sveriges Riksbank - Research Division ( email )

S-103 37 Stockholm
Sweden

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