TY  - JOUR
AU  - Doepke,Matthias
AU  - Schneider,Martin
TI  - Inflation as a Redistribution Shock: Effects on Aggregates and Welfare
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12319
PY  - 2006
Y2  - June 2006
UR  - http://www.nber.org/papers/w12319
L1  - http://www.nber.org/papers/w12319.pdf
N1  - Author contact info:
Matthias Doepke
Northwestern University
Department of Economics
2001 Sheridan Road
Evanston, IL 60208
Tel: 847-491-8207
E-Mail: doepke@northwestern.edu

Martin Schneider
Department of Economics
Stanford University
579 Serra Mall
Stanford, CA 94305-6072
Tel: (650) 721 6320
E-Mail: schneidr@stanford.edu
M2  - featured in NBER digest on 2006-06-26
AB  - Episodes of unanticipated inflation reduce the real value of nominal claims and thus redistribute wealth from lenders to borrowers. In this study, we consider redistribution as a channel for aggregate and welfare effects of inflation. We model an inflation episode as an unanticipated shock to the wealth distribution in a quantitative overlapping-generations model of the U.S. economy. While the redistribution shock is zero sum, households react asymmetrically, mostly because borrowers are younger on average than lenders. As a result, inflation generates a decrease in labor supply as well as an increase in savings. Even though inflation-induced redistribution has a persistent negative effect on output, it improves the weighted welfare of domestic households.
ER  -