Working Paper: CEPR ID: DP9987
Authors: Klaus Adam; Junyi Zhu
Abstract: We document the presence of sizable distributional effects from unexpected price level movements 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 winner of unexpected price level increases, with Italy, Greece, Portugal and Spain being the biggest beneficiaries, and Belgium and Malta being the largest losers. Governments are net winners of inflation, while the household (HH) sector is a net loser in the EA as a whole. HHs in Belgium, Ireland, Malta and Germany incur the biggest per capita losses, while HHs in Finland and Spain turn out to be net winners of inflation. Considerable heterogeneity exists also within the HH sector: relatively young middle class HHs are net winners of inflation, while older and richer HHs are losers. As a result, wealth inequality in the EA decreases with unexpected inflation, although in some countries (Austria, Germany and Malta) inequality increases due to 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.
Keywords: Euro Area; Household Survey; Inflation; Redistribution
JEL Codes: D14; D31; E31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| unexpected price level increases (E30) | redistribution of nominal wealth (D31) |
| unexpected price level increases (E30) | net winners in euro area (F36) |
| unexpected price level increases (E30) | per capita gain in euro area (O52) |
| unexpected price level increases (E30) | significant gains for Greece, Portugal, Italy, and Spain (O52) |
| unexpected price level increases (E30) | losses for Belgium and Malta (N84) |
| unexpected price level increases (E30) | decrease in wealth inequality in euro area (D31) |
| unexpected price level increases (E30) | increase in wealth inequality in Austria, Germany, and Malta (D31) |
| unexpected price level increases (E30) | net winners among young middle-class households (D19) |
| unexpected price level increases (E30) | losers among older and wealthier households (D14) |