On the Distributional Effects of Inflation and Inflation Stabilization

Del Negro, Marco; Dogra, Keshav; Gundam, Pranay; Lee, Donggyu; Pacula, Brian

Discussion Paper

On the Distributional Effects of Inflation and Inflation Stabilization

Abstract: This post and the next discuss the distributional effects of inflation and inflation stabilization through the lenses of a theoretical model—a Heterogeneous Agent New Keynesian (HANK) model. This model combines the features of New Keynesian models that have been the workhorse for monetary policy analysis since the work of Woodford (2003) with inequality in wealth and income at the household level following the seminal contribution of Kaplan, Moll, and Violante (2018). We find that while inflation hurts everyone, it hurts the poor in particular. When the source of inflation is a supply shock, fighting inflation aggressively hurts the poor even more, however, while the opposite is true for demand shocks, as discussed in the companion post.

Keywords: HANK model; heterogenous agent New Keynesian (HANK); monetary policy; inflation; inequality;

JEL Classification: E12; E31; E52; D31;