We measure the heterogeneous first-order welfare effects of the recent inflation surge across households in the euro area. A simple framework illustrating the numerous transmission channels of surprise inflation to household welfare guides our empirical exercise. By combining micro data and aggregate time series, we conclude that: (i) country-level average welfare costs – expressed as a share of triennial income – were sizable and heterogeneous: around 3% in France and Spain, 7% in Germany, and 9% in Italy; (ii) this inflation episode resembles an age-dependent tax, with the retirees losing up to 14%, and roughly half of the 25–44 year-old winning; (iii) losses were quite uniform across consumption quantiles because rigid rents served as a hedge for the poor; (iv) nominal net positions were the key driver of heterogeneity across-households; (v) the rise in energy prices generated vast variation in individual-level inflation rates, but unconventional fiscal policies helped shield households. The counterpart of this household-sector loss is a significant gain for the government.

Abstract: I show that the wealth redistribution from savers to borrowers, triggered by the recent inflationary episode, has been one of the reasons for the remarkable strength of the U.S. economy after the pandemic. Unexpected inflation reduced the real value of households’ debts. Using a Heterogeneous Agent New Keynesian (HANK) model calibrated to match to match the empirical distribution of nominal exposures and their covariance with marginal propensities to consume (MPCs), I find that this wealth transfer increased aggregate consumption and contributed to inflation persistence. I support these findings with empirical evidence from billions of household-level transactions obtained from a U.S. fintech company, as well as county-level data on consumption and nominal debt. Finally, I demonstrate that the Fisher channel significantly amplifies the effectiveness of monetary policy in HANK and revisit the ”paradox of flexibility,” highlighting how wealth redistribution from unexpected inflation influences the interaction between nominal rigidity and monetary policy transmission.

Abstract: We study the speed of transmission of monetary to economic activity in the UK, exploiting a novel dataset of daily private consumption spending, online prices, and posted vacancies. We find that high frequency identified monetary policy surprises have significant short-run effects on household spending and posted vacancies in the UK, with both variables responding within days. This quick consumption response can be explained by heightened consumer attention and fear of unemployment in response to contractionary monetary policy surprises. On the other hand, prices react more sluggishly with a significant response only after around 100 days. These results provide new evidence on the speed of the monetary policy transmission that went undetected previously because of the focus on lower-frequency data. 

Abstract: I document the evolution of nominal positions in the US over the last two decades and estimate the redistributive effects of several inflation episodes. I find that the US government gained around 4.5% of US GDP from the 2021 inflation shock, essentially at the expense of foreigners. In addition, there has been a significant concentration of nominal assets among the wealthiest middle-aged and elderly households, who lost substantially. Most other groups of households gained on average. The financial sector is extremely exposed to anticipated inflation. Raising the inflation target by 2pp would have generated a modest gain for the household sector, especially at the start of the Great Recession.