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Inflation and Redistribution

By Matthew Yglesias on December 16, 2006 at 11:14 am

"Inflation and Redistribution"

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Via Tyler Cowen, Matthias Doepke and Martin Schneider look at “Inflation and the Redistribution of Nominal Wealth”. This is from the conclusion:

Our main result is that even moderate inflation leads to a sizeable redistribution of wealth. Within the household sector, the main losers from inflation are rich, old households, whereas the main winners are young, middle-class households with mortgage debt. Across sectors, inflation is a boon for
the government and a tax on foreigners. Lately, the net nominal position of the rest of the world has grown dramatically, increasing the potential for a large inflation-induced wealth transfer from foreigners to domestic households. We also find that the redistributional effects induced by surprising realized inflation differ from those induced by surprising news about future inflation. While knowing the size of nominal positions is sufficient to calculate the former, duration is needed to gauge the latter.

Interesting. It’s worth recalling that debates about the money supply were a persistent feature of American politics for well over one hundred years. Over the past couple of decades, that’s all been taken off the table.

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