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On the Redistributional Effects of Long-Run Inflation in a Cash-in-Advance Economy

Kakar, Venoo (2014): On the Redistributional Effects of Long-Run Inflation in a Cash-in-Advance Economy.

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Abstract

This paper analyses the redistributional effects of long-run inflation on income, wealth and consumption in the United States in a model economy with heterogeneous agents where money is introduced via a cash-in-advance constraint. In the case with transfers, we find that consumption inequality reduces as inflation increases since the low income households hold a relatively higher cash-wealth ratio. The bottom 60% of the population gains and the top 40% loses. In the case without transfers, we find that all income groups lose with the losses being more pronounced in the low income households.

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