Inflation as a Redistribution Shock: Effects on Aggregates and Welfare / Matthias Doepke, Martin Schneider.

Format:

Book

Author/Creator:

Doepke, Matthias.

Contributor:

National Bureau of Economic Research.

Schneider, Martin.

Series:

Working Paper Series (National Bureau of Economic Research) no. w12319.

NBER working paper series no. w12319

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Inflation as a Redistribution Shock

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2006.

Summary:

Episodes of unanticipated inflation reduce the real value of nominal claims and thus redistribute wealth from lenders to borrowers. In this study, we consider redistribution as a channel for aggregate and welfare effects of inflation. We model an inflation episode as an unanticipated shock to the wealth distribution in a quantitative overlapping-generations model of the U.S. economy. While the redistribution shock is zero sum, households react asymmetrically, mostly because borrowers are younger on average than lenders. As a result, inflation generates a decrease in labor supply as well as an increase in savings. Even though inflation-induced redistribution has a persistent negative effect on output, it improves the weighted welfare of domestic households.

Notes:

Print version record

June 2006.