This study quantitatively assesses the effects of inflation through changes in the value of nominal assets. It documents nominal asset positions in the United States across sectors and groups of households and estimates the wealth redistribution caused by a moderate inflation episode. The main losers from inflation are rich, old households, the major bondholders in the economy. The main winners are young, middle-class households with fixed-rate mortgage debt. Besides transferring resources from the old to the young, inflation is a boon for the government and a tax on foreigners. Lately, the amount of U.S. nominal assets held by foreigners has grown dramatically, increasing the potential for a large inflation-induced wealth transfer from foreigners to domestic households.
I don’t mean to sound snarky (really), but the idea that creditors prefer (and are enriched by) low inflation, while debtors prefer high inflation isn’t exactly new: that’s what Bryan’s “Cross of Gold” speech was all about. It also doesn’t seem particularly novel that bondholders would be disproportionately wealthly and old–nothing novel there either. That such a paper would be seen as a challenge to the prevailing mindset (or for that matter, even need to be published) just shows how depauperate our political and economic discourse is.