Price Level Changes and the Redistribution of Nominal Wealth Across the Euro Area

58 Pages Posted: 30 Sep 2015

See all articles by Klaus Adam

Klaus Adam

University of Mannheim; European Central Bank (ECB) - Department of Research; Centre for Economic Policy Research (CEPR)

Junyi Zhu

Deutsche Bundesbank

Date Written: September 29, 2015

Abstract

We show that unexpected price level movements generate sizable wealth redistribution in the Euro Area (EA), using sectoral accounts and newly available data from the Household Finance and Consumption Survey. The EA as a whole is a net loser of unexpected price level decreases, with Italy, Greece, Portugal and Spain losing most in per capita terms, and Belgium and Malta being net winners. Governments are net losers of deflation, while the household (HH) sector is a net winner in the EA as a whole. HHs in Belgium, Ireland, Malta and Germany experience the biggest per capita gains, while HHs in Finland and Spain turn out to be net losers. Considerable heterogeneity exists also within the HH sector: relatively young middle class HHs are net losers of deflation, while older and richer HHs are winners. As a result, wealth inequality in the EA increases with unexpected deflation, although in some countries (Austria, Germany and Malta) inequality decreases due to the presence of relatively few young borrowing HHs. We document that HHs inflation exposure varies systematically across countries, with HHs in high inflation EA countries holding systematically lower nominal exposures.

Keywords: price level, redistribution, Euro Area, household survey

JEL Classification: E31, D31, D14

Suggested Citation

Adam, Klaus and Zhu, Junyi, Price Level Changes and the Redistribution of Nominal Wealth Across the Euro Area (September 29, 2015). ECB Working Paper No. 1853, Available at SSRN: https://ssrn.com/abstract=2666983 or http://dx.doi.org/10.2139/ssrn.2666983

Klaus Adam (Contact Author)

University of Mannheim ( email )

Department of Economics
L7 ,3-5
Mannheim, 68131
Germany

HOME PAGE: http://adam.vwl.uni-mannheim.de/1528.0.html

European Central Bank (ECB) - Department of Research ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
+49 69 1344 6597 (Phone)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Junyi Zhu

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

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