Real Effects of Inflation Through the Redistribution of Nominal Wealth

FRB of Minneapolis Staff Report No. 355

54 Pages Posted: 9 Feb 2005

See all articles by Matthias Doepke

Matthias Doepke

Northwestern University - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Martin Schneider

Independent

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Date Written: February 2005

Abstract

This paper provides a quantitative assessment of the effects of inflation through changes in the value of nominal assets. We document nominal positions in the U.S. across sectors as well as different groups of households, and estimate the redistribution brought about by a moderate inflation episode. Redistribution takes the form of "ends-against-the-middle" the middle class gains at the cost of the rich and poor. In addition, inflation favors the young over the old, and hurts foreigners. A calibrated OLG model is used to assess the macroeconomic implications of this redistribution under alternative fiscal policy rules. We show that inflation-induced redistribution has a persistent negative effect on output, but improves the weighted welfare of domestic households.

Keywords: Inflation, Redistribution, Welfare

JEL Classification: D31, D58, E31, E50

Suggested Citation

Doepke, Matthias and Schneider, Martin, Real Effects of Inflation Through the Redistribution of Nominal Wealth (February 2005). FRB of Minneapolis Staff Report No. 355. Available at SSRN: https://ssrn.com/abstract=664641 or http://dx.doi.org/10.2139/ssrn.664641

Matthias Doepke (Contact Author)

Northwestern University - Department of Economics ( email )

2003 Sheridan Road
Evanston, IL 60208
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Martin Schneider

Independent ( email )

No Address Available
United States

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