Aggregate andwelfareeffectsofredistributionofwealthunder inflation andprice-leveltargeting

An unanticipatedriseinthepricelevelredistributeswealthfromlenderstoborrowers. Its sizedependsonthemonetarypolicyregime,asinflationtargeting(IT)andprice- level targeting(PT)havedifferentimplicationsfortheprice-levelpathfollowingprice- level movements.Theeffectsofanunexpected1%price-levelincreasearemeasuredand assessedunderbothregimes.Overall,theredistributionofwealthandtheimplied aggregateandwelfareeffectsarelargerunderITthantheyareunderPT.Theyoungest, the poorest,andthegovernmentgainattheexpenseoftherestofthepopulationand, when thegovernmentgainisgiventohouseholdsaslump-sumtransfers,theeffectson GDP arenegativeandlong-lasting