Working Paper: NBER ID: w31124
Authors: Felipe N. Del Canto; John R. Grigsby; Eric Qian; Conor Walsh
Abstract: We develop a framework to measure the welfare impact of inflationary shocks throughout the distribution. The first-order impact of a shock is summarized by the induced movements in agents' feasible sets: their budget constraint and borrowing constraints. To measure this impact, we combine estimated impulse response functions with micro-data on household consumption bundles, asset holdings and labor income for different US households. We find that inflationary oil shocks are regressive, but monetary expansions are progressive, and there is substantial heterogeneity throughout the life cycle. In both cases, the dominant channel is the effect of the shock on asset prices, not movements in goods prices or labor income.
Keywords: Inflation; Welfare Impact; Household Consumption; Asset Prices; Monetary Policy
JEL Codes: E21; E30; E50
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Inflationary oil shocks (E31) | Low-education households (I24) |
| Inflationary oil shocks (E31) | Middle-aged, college-educated households (D19) |
| Monetary expansions (E49) | Higher-education households (I23) |
| 25 basis point cut in nominal rates (E43) | Middle-aged, high-education households (D19) |
| Oil supply contractions (Q31) | Declines in equity prices (G12) |
| Monetary expansions (E49) | Prices of assets (G19) |