Essays in inflation and wealth

My dissertation centers on two topics in macroeconomics. The first is the role of nominal portfolio decisions on the redistribution effects of unpredictable movements in inflation, which are the focus of the first two chapters. The second topic focuses on the role of central bank balance sheet for optimal policy when the fiscal transfers between the treasury and the central bank are constrained.;The first chapter focuses on how consumption of different groups of agents commove with unpredictable movements in inflation. Surprisingly, I find that there is a positive and similar commovement between consumption and unexpected inflation across different groups of agents, despite the evidence that there is a significant heterogeneity on the average holdings of bonds for the different groups of agents in the US economy. This evidence leads to the conclusion that an unpredictable movement in inflation affects different components of agents life-time wealth other than the value of nominal asset, which has been the focus of the recent literature.;The second chapter reconciles the evidence of commovements between inflation and consumption and the documented heterogeneity in nominal asset positions. First, a simple model show that if agents (i) choose their portfolios optimally and (ii) have different exposure to aggregate shocks that affect inflation in their disposable income, then nominal portfolio positions reflect different risks and are not good predictors of winners and losers of unpredictable movements in the price level. Lastly, in a calibrated DSGE with overlapping generations and endogenous portfolio decisions, I show that, if there is heterogeneity on exposure to aggregate risk in uninsurable income over the life cycle and complementarity between labor and consumption, the model matches the data with respect to (i) the distribution of ratios of nominal assets to total wealth and (ii) the pattern of consumption changes accompanying inflation surprises.;The third chapter, written jointly with Saroj Bhattarai, focuses on how central bank balance sheet considerations affect optimal monetary policy. I focus on the case where central bank independence limits state contingent transfers between the treasury and the central bank. This way, the central bank is subject to a budget constraint and state-contingent transfers from the treasury are not allowed. This change renders the standard optimal monetary policy solution non implementable. In addition to facing a budget constraint, when the central bank targets real capital, optimal monetary policy is substantially different from the standard case.