Unanticipated inflation and wealth transfers in the Australian economy

McNab, Alexander Duncan Keith. (2001). Unanticipated inflation and wealth transfers in the Australian economy Honours Thesis, School of Economics, The University of Queensland.

       
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Author McNab, Alexander Duncan Keith.
Thesis Title Unanticipated inflation and wealth transfers in the Australian economy
School, Centre or Institute School of Economics
Institution The University of Queensland
Publication date 2001
Thesis type Honours Thesis
Total pages 96
Language eng
Subjects 14 Economics
Formatted abstract Whenever inflation is unanticipated there are arbitrary wealth transfers between borrowers and lenders. However, if inflation expectations are rational then these transfers will tend to cancel out over time, as agents will not make systematic errors. While these transfers have long been understood, little attempt has been made to quantify their extent. This thesis quantifies the extent of the wealth transfers that have been caused by unanticipated inflation in Australia. It proceeds in two steps. First, it tests whether inflation expectations in Australia (as measured by the Melbourne Institute Survey of Inflation Expectations) are rational, finding that the survey is both a biased and an inefficient predictor of inflation outcomes (thereby violating the rationality criteria). Second, it quantifies the extent of the wealth transfers, finding that for each percentage point of unanticipated inflation, there will be a wealth transfer of approximately 1.4 percent of GDP. Given that unanticipated inflation has been as high as 7 percent in the recent past, the redistributive effects are potentially very large.

 
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