Congratulations to Ricardo Reis who has been awarded an ERC Advanced Grant for the project DISINF (The Distributional Consequences of Inflation). The grant will run for 5 years (2022-2027).
Ricardo's research will use detailed micro data from the financial sector to measure what is the exposure of different groups to inflation risk, which institutions sell and buy inflation risk, and how this affects the differential pass-through of inflation to nominal interest rates. These redistributions can cause costly financial crisis and are often behind financial repression measures.
Second, it will use models of non-financial firms that are differentially exposed to inflation risk and are likely to have their operations impacted by unexpected shocks. The heterogeneous impact of inflation across firms generate a new source of costs of inflation, as they lead to distortions in the allocation of inputs and production that are amplified by price rigidity.
Third, the composition and maturity of the public debt redistributes risk between current generations and future ones. Empirically, the extent to which the government shifts inflation risk between itself and the private economy varies considerably over time, and this affects the cyclicality of the tightness of the government budget constraint as well as the incentives to inflate away the debt. For the central bank, inflation has a differential effect on the attractiveness of banknotes, public digital currency, and private digital currency, and this in turn determines the seignorage revenue that central banks earn and so the financial constraints that monetary policy faces in the pursuit of stable inflation.
Mariya Gabriel, European Commissioner for Innovation, Research, Culture, Education and Youth, said: “The ERC Advanced Grants support ground-breaking researchers throughout Europe. It gives our talents the possibility to realise their creative ideas. Their pioneering work contribute to solve the most pressing social, economic and environmental challenges.”
Read the ERC’s full press release