Aggregate and welfare effects of redistribution of wealth under inflation and price-level targeting

Césaire A. Meh, José Víctor Ríos-Rull, Yaz Terajima

Research output: Contribution to journalArticlepeer-review

18 Scopus citations

Abstract

An unanticipated rise in the price level redistributes wealth from lenders to borrowers. Its size depends on the monetary policy regime, as inflation targeting (IT) and price-level targeting (PT) have different implications for the price-level path following price-level movements. The effects of an unexpected 1% price-level increase are measured and assessed under both regimes. Overall, the redistribution of wealth and the implied aggregate and welfare effects are larger under IT than they are under PT. The youngest, the poorest, and the government gain at the expense of the rest of the population and, when the government gain is given to households as lump-sum transfers, the effects on GDP are negative and long-lasting.

Original languageEnglish (US)
Pages (from-to)637-652
Number of pages16
JournalJournal of Monetary Economics
Volume57
Issue number6
DOIs
StatePublished - Sep 1 2010

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