Working Paper
Inequality in the Welfare Costs of Disinflation
Abstract: 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;
https://doi.org/10.20955/wp.2020.021
Access Documents
File(s):
File format is application/pdf
https://s3.amazonaws.com/real.stlouisfed.org/wp/2020/2020-021.pdf
Description: Full Text
Authors
Bibliographic Information
Provider: Federal Reserve Bank of St. Louis
Part of Series: Working Papers
Publication Date: 2019-12-04
Number: 2020-021
Related Works
- Working Paper Revision (2021-09-23) : Inequality in the Welfare Costs of Disinflation
- Working Paper Revision (2021-01-23) : Inequality in the Welfare Costs of Disinflation
- Working Paper Original (2019-12-04) : You are here.