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Are Inflationary Shocks Regressive? A Feasible Set Approach

Author

Listed:
  • 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.

Suggested Citation

  • Felipe N. Del Canto & John R. Grigsby & Eric Qian & Conor Walsh, 2023. "Are Inflationary Shocks Regressive? A Feasible Set Approach," NBER Working Papers 31124, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:31124
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    Citations

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    Cited by:

    1. Michael E. Waugh, 2023. "Heterogeneous Agent Trade," Staff Report 653, Federal Reserve Bank of Minneapolis.
    2. Chan, Jenny & Diz, Sebastian & Kanngiesser, Derrick, 2024. "Energy prices and household heterogeneity: Monetary policy in a Gas-TANK," Journal of Monetary Economics, Elsevier, vol. 147(S).
    3. Drossidis, Theo & Mumtaz, Haroon & Theophilopoulou, Angeliki, 2024. "The distributional effects of oil supply news shocks," Economics Letters, Elsevier, vol. 240(C).
    4. Pallotti, Filippo & Paz-Pardo, Gonzalo & Slacalek, Jiri & Tristani, Oreste & Violante, Giovanni L., 2024. "The unequal impact of the 2021-22 inflation surge on euro area households," Research Bulletin, European Central Bank, vol. 116.
    5. Guerreiro, Joao & Hazell, Jonathon & Lian, Chen & Patterson, Christina, 2024. "Why Do Workers Dislike Inflation? Wage Erosion and Conflict Costs," IZA Discussion Papers 17339, Institute of Labor Economics (IZA).
    6. Simon Mongey & Michael E. Waugh, 2024. "Discrete Choice, Complete Markets, and Equilibrium," Staff Report 656, Federal Reserve Bank of Minneapolis.
    7. Minsu Chang & Frank Schorfheide, 2024. "On the Effects of Monetary Policy Shocks on Income and Consumption Heterogeneity," NBER Working Papers 32166, National Bureau of Economic Research, Inc.
    8. Luca Eduardo Fierro & Mario Martinoli, 2024. "An Empirical Inquiry into the Distributional Consequences of Energy Price Shocks," LEM Papers Series 2024/30, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    9. Consolo, Agostino & Hänsel, Matthias, 2024. "HANK faces unemployment," Working Paper Series 2953, European Central Bank.
    10. Yu-Ting Chiang & Ezra Karger & Jesse LaBelle, 2024. "Treasury Debt and Inflation Tax," Review, Federal Reserve Bank of St. Louis, vol. 106(9), pages 1-11, October.
    11. Pallotti, Filippo & Paz-Pardo, Gonzalo & Slacalek, Jiri & Tristani, Oreste & Violante, Giovanni L., 2023. "Who bears the costs of inflation? Euro area households and the 2021–2022 shock," Working Paper Series 2877, European Central Bank.

    More about this item

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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