Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/230210
Authors: 
Loenser, Christian
Schabert, Andreas
Year of Publication: 
2020
Citation: 
[Journal:] International Economic Review [ISSN:] 1468-2354 [Volume:] 61 [Issue:] 4 [Pages:] 1501-1529
Abstract: 
This article examines how financial constraints affect redistribution via monetary policy. We explore a novel mechanism of monetary nonneutrality, which is based on debt limits imposed in nominal terms. Specifically, when debt is constrained by current income, monetary policy can alter the real terms of borrowing. Changes in inflation exert ambiguous effects, depending on the initial debt/wealth position and the willingness to borrow. We show analytically that borrowers can benefit from increased debt limits under lower inflation rates. This novel effect can dominate conventional debt deflation effects. We find that particularly less indebted borrowers as well as potential future borrowers gain and that aggregate welfare can be enhanced under a permanent reduction inĀ inflation.
Persistent Identifier of the first edition: 
Creative Commons License: 
http://creativecommons.org/licenses/by/4.0/
Document Type: 
Article
Document Version: 
Published Version

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