Inflation and income inequality in a Schumpeterian economy with menu costs

Inflation and income inequality in a variety-expansion growth model with menu costs

“…That is, the channel via the asset-value effect is silent. This feature is similar to that in Zheng (2020). Moreover, in this case, higher inflation can either stimulate or depress economic growth, which depends on two opposing forces.…”

“…10 In the numerical analysis, under higher inflation, the interest-rate effect is negative, but the asset-value effect and the impact of inflation on income inequality could be negative or positive, subject to values of parameters. Therefore, comparing the current study to Zheng (2020) implies that the process of innovation (i.e., variety expansion versus quality improvement) and the R&D specification (i.e., lab-equipment versus knowledge-driven) play a crucial role in determining how inflation affects income inequality in an R&D-based growth framework.…”

“…Cozzi, Fan, Furukawa and Liao (2019) and Zheng (2020). It is because an unequal distribution of wealth is the source of income inequality.…”

“…Therefore, this could lead to a negative or potentially positive impact of inflation on income inequality, depending on certain parameter values. 3 This mechanism for the inflation-inequality relation differs from that in Zheng (2020), who explores a similar question in a Schumpeterian growth model with a knowledge-based specification. 4 We find that such a difference arises from the distinction between the knowledge-based specification and the lab-equipment specification (instead of the dissimilarity between qualityimproving innovations and variety-expanding innovations), which determines the asset-value channel to be active or not.…”

“…Nevertheless, Appendix C shows that in the knowledge-based version of the benchmark model, inflation affects income inequality only via the interest-rate effect but not through the asset-value effect, as inZheng (2020).…”