The Welfare Cost of Inflation Risk Under Imperfect Insurance

Olivier Allais, Xavier Ragot, Edouard Challe and Yann Algan
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Olivier Allais: Inra

No 867, 2015 Meeting Papers from Society for Economic Dynamics

Abstract: What are the costs of inflation fluctuations and who bears those costs? In this paper, we investigate this question by means of a quantitative incomplete-market, heterogenous-agent model wherein households hold real and nominal assets and are subject to both idiosyncratic labor income shocks and aggregate inflation risk. Inflation risk is found to generates signicant welfare losses for most households, i.e., between 1 and 1.5 percent of permanent consumption. The loss is small or even negative for households at the very top of the productivity and/or wealth distribution. A key feature of our analysis is a nonhomothetic specication for households' preferences towards money and consumption goods. Unlike traditional specications, ours allows the model to reproduce the broad features of the distribution of monetary assets (in addition to being consistent with the distribution of nonmonetary assets).

Date: 2015
New Economics Papers: this item is included in nep-dge, nep-ias and nep-mon
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: The Welfare Cost of Inflation Risk under Imperfect Insurance (2020)
Working Paper: The welfare cost of inflation risk under imperfect insurance (2020)
Working Paper: The Welfare Cost of Inflation Risk under Imperfect Insurance (2020)
Working Paper: The welfare cost of inflation risk under imperfect insurance (2020)
Working Paper: The Welfare Cost of Inflation Risk under Imperfect Insurance (2020)
Working Paper: THE WELFARE COST OF INFLATION RISK UNDER IMPERFECT INSURANCE (2015)
Working Paper: THE WELFARE COST OF INFLATION RISK UNDER IMPERFECT INSURANCE (2015)
Working Paper: THE WELFARE COST OF INFLATION RISK UNDER IMPERFECT INSURANCE (2015)
Working Paper: The Welfare Cost of Inflation Risk Under Imperfect Insurance (2015)
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