Document Type
Article
Publication Date
2014
Abstract
The impact of fully anticipated inflation is systematically studied in heterogeneous agent economies with an endogenous labor supply and portfolio choices. In stationary equilibrium, inflation nonlinearly alters the endogenous distributions of income, wealth, and consumption. Small departures from zero inflation have the strongest impact. Three features determine how inflation impacts distributions and welfare: financial structure, shock persistence, and labor supply elasticity. When agents can self-insure only with money, inflation reduces wealth inequality but may raise consumption inequality. Otherwise, inflation reduces consumption inequality but may raise wealth inequality. Given persistent shocks and an inelastic labor supply, inflation may raise average welfare. The results hold when the model is extended to account for capital formation.
Recommended Citation
Camera, Gabriele, and YiLi Chien. "Understanding the Distributional Impact of Long‐Run Inflation." Journal of Money, Credit and Banking 46.6 (2014): 1137-1170. doi: 10.1111/jmcb.12136
Peer Reviewed
1
Copyright
Wiley
Comments
This is the accepted version of the following article:
Camera, Gabriele, and YiLi Chien. "Understanding the Distributional Impact of Long‐Run Inflation." Journal of Money, Credit and Banking 46.6 (2014): 1137-1170. DOI: 10.1111/jmcb.12136.