THE DISTRIBUTIONAL EFFECTS O F THE 1969-75 INFLATION ON HOLDINGS O F HOUSEHOLD WEALTH IN THE UNITED STATES*

Using a simple simulation model, this paper assesses the impact of relative movements in asset prices on the distribution of wealth during the 1969-75 period. Because of the strong negative correlation between wealth level and the ratio of debt to wealth, this particular inflation induced a substantial drop in the overall level of wealth inequality. Moreover, comparing the portfolios of different demographic groups, we found that middle-aged households gained relatively to younger and older ones, married couples gained relatively to singles, whites gained relatively to non-whites, and home-owners gained relatively to renters. The biggest gainers from this inflation were home-owners with large mortgages and the biggest losers the large stock holders. Inflation has often been treated as an unmitigated social evil. Yet, it is the case that some social groups have been hurt less by inflation than others and, in fact, some groups have even benefited from inflation in real terms. This paper analyzes one aspect of this issue: the distributional impact of inflation on household wealth holdings. The paper focuses on one inflationary period in the United States, that of 1969 to 1975. Starting with sample household balance sheet information for 1969, a relatively simple simulation model is used to update the balance sheets t