Working Paper Revision

Nominal Maturity Mismatch and the Liquidity Cost of Inflation

Abstract: We document a liquidity channel through which unexpected inflation generates substantial welfare losses. Households hold nominal liabilities with longer duration than their nominal assets. Due to this mismatch, losses from unexpected inflation concentrate over short horizons while gains accumulate over the long run, harming liquidity-constrained households who cannot borrow against future gains. The 2021–2022 inflation shock caused welfare losses valued at 1.1% of lifetime wealth for the lower half of the wealth distribution—equivalent in dollar terms to 47% of annual consumption. More than three-quarters of this loss comes from our liquidity channel rather than the traditional wealth channel.

JEL Classification: E2; E3; G5;

https://doi.org/10.20955/wp.2024.031

Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Working Papers

Publication Date: 2025-12-09

Number: 2024-031

Related Works

• Working Paper Revision (2025-12-09) : You are here.
• Working Paper Original (2024-09-30) : Nominal Maturity Mismatch and the Liquidity Cost of Inflation