How Much Can Households Gain and Lose with Unexpected Inflation? | 국외연구자료

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How Much Can Households Gain and Lose with Unexpected Inflation?

FRB of St. Louis

2024.10.24

Inflation is a common concern for U.S. households. But it affects different people in different ways. Generally, unexpected inflation redistributes from nominal lenders to nominal borrowers because the amount of money a borrower needs to repay is worth less in real terms than the amount originally borrowed. Most households, however, are nominal lenders and borrowers at the same time, holding both nominal assets (e.g. deposits) and liabilities (e.g. mortgage). Therefore, to understand how a household is affected by inflation, one must take a closer look at their balance sheet.

In this blog post based on recent research by Yu-Ting Chiang and Ezra Karger,1 we show that households’ nominal assets usually feature a much shorter time horizon than their nominal liabilities. As a result, unexpected inflation generates losses for households in the short term as the real value of their nominal assets (such as wages and bank deposits) declines, while some households may gain in the long term as the real value of nominal liabilities (such as mortgages) declines. We assess gains and losses for U.S. households over different time horizons during the 2021-22 inflation episode.

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