Inequality in the Welfare Costs of Disinflation

40 Pages Posted: 24 Jul 2020

See all articles by Benjamin W. Pugsley

Benjamin W. Pugsley

University of Notre Dame - Department of Economics

Hannah Rubinton

Princeton University

Date Written: December 1, 2019


We use an incomplete markets economy to quantify the distribution of welfare gains and losses of the US "Volcker" disinflation. In the long run households prefer low inflation, but disinflation requires a transition period and a redistribution from net nominal borrowers to net nominal savers. Even with perfectly flexible prices, welfare costs may be significant for households with nominal liabilities. When calibrated to match the micro and macro moments of the early 1980s high inflation environment, almost half of all borrowers (14 percent of all households) would prefer to avoid the redistribution and equilibrium effects of the disinflation. This share depends negatively on the liquidity value of money and positively on the average duration of nominal borrowing.

Keywords: Monetary Policy, Inequality, Redistribution

JEL Classification: E31, E52

Suggested Citation

Pugsley, Benjamin W. and Rubinton, Hannah, Inequality in the Welfare Costs of Disinflation (December 1, 2019). FRB St. Louis Working Paper No. 2020-021, Available at SSRN: or

Benjamin W. Pugsley (Contact Author)

University of Notre Dame - Department of Economics ( email )

Notre Dame, IN 46556
United States

Hannah Rubinton

Princeton University ( email )

22 Chambers Street
Princeton, NJ 08544-0708
United States

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