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Price-Level Changes and the Redistribution of Nominal Wealth across the Euro Area

Author

Listed:
  • Klaus Adam
  • Junyi Zhu
Abstract
We show that unexpected price-level movements generate sizable wealth redistribution in the Euro Area (EA), using sectoral accounts and newly available data from the Household Finance and Consumption Survey. The EA as a whole is a net loser of unexpected price-level decreases, with Italy, Greece, Portugal, and Spain losing most in per capita terms, and Belgium and Malta being net winners. Governments are net losers of deflation, while the household (HH) sector is a net winner in the EA as a whole. HHs in Belgium, Ireland, Malta, and Germany experience the biggest per capita gains, while HHs in Finland and Spain turn out to be net losers. Considerable heterogeneity exists also within the HH sector: relatively young middle class HHs are net losers of deflation, while older and richer HHs are winners. As a result, wealth inequality in the EA increases with unexpected deflation, although in some countries (Austria, Germany, and Malta) inequality decreases due to the presence of relatively few young borrowing HHs. We document that HHs’ inflation exposure varies systematically across countries, with HHs in high-inflation EA countries holding systematically lower nominal exposures.

Suggested Citation

  • Klaus Adam & Junyi Zhu, 2016. "Price-Level Changes and the Redistribution of Nominal Wealth across the Euro Area," Journal of the European Economic Association, European Economic Association, vol. 14(4), pages 871-906.
    • Handle: RePEc:oup:jeurec:v:14:y:2016:i:4:p:871-906.
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    File URL: http://hdl.handle.net/10.1111/jeea.12155
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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