Redistributional Effects of Monetary PolicyInflation targeting is not a neutral pareto improvement  Any choice of targetredistributes from some groups to others  making some worse offFor example high inflation harms holders of fixed rate debt  includingpensioneers holders of fixed income securities employees with protectedjobs and annuitylike compensation including most government employeesand policy makers and most tenured academics and creditors  It benefitsnet debtors  particularly if they have fixed rate debt or debt with interestrate caps  It also benefits owners of commodities real estate foreign currenciesequity in export oriented firms local employees in trade sensitive andoffshoringcapable sectors and the unemployed  Low inflation benefitsholders of fixed rate debt business that export to the target countryimporters employees who gain from offshoring retired people on fixed pensionsand people with protected annuity like wages academics government employeesand policy makers  Low inflation therefore tends to favor rentiers increasing their wealth by boosting the purchasing power of their assetsand transfers wealth away from debtors owners of real estateowners of commodities local import sensitive businesses and the insecurely employedIn theory this could be corrected  restoring its neutrality and Pareto improvementhowever transaction costs moral hazard information asymmetry and political resistance would make such wealth transfers grossly impracticalTo the extent that Monetary policy creates a known and predictable transferof wealth between a priori known counterparties it is not a neutral economic tool and cannot be divorced from political considerations and preferred constituenciesFurthermore such constituencies will try to influence choice of monetary policytargets  rentierscreditors and pensioners will prefer tight monetary policy debtors will prefer looser monetary policy as will exporters and other participantsin internationallytradeable sectors of the economy owners of commodities  and real estate and the precariously employedIf redistribution of wealth via such mechanisms has differential efficiencyimpact and impacts the network of business formation and production withinand between trading nations some monetary policy targets may also movean economy away from an efficient frontierMoral Hazard of Monetary Policy Making Agents From a principal agent perspective monetary policy makers face a personal moral hazard  since their compensation typically takes theform of a secure fixed annuity  This would incentivize them to favortight monetary policy  even at the expense of lower real GDP growthCompensation schemes that made their personal wealth inversely relatedto the unemployment rate would create a moral hazard in favor of overlyloose monetary policy  Compensation schemes that made their personal wealth contingent on real GDP growth may be more efficient by reducing theiroverall moral hazard

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Redistributional Effects of Monetary PolicyInflation targeting is not a neutral pareto improvement  Any choice of targetredistributes from some groups to others  making some worse offFor example high inflation harms holders of fixed rate debt  includingpensioneers holders of fixed income securities employees with protectedjobs and annuitylike compensation including most government employeesand policy makers and most tenured academics and creditors  It benefitsnet debtors  particularly if they have fixed rate debt or debt with interestrate caps  It also benefits owners of commodities real estate foreign currenciesequity in export oriented firms local employees in trade sensitive andoffshoringcapable sectors and the unemployed  Low inflation benefitsholders of fixed rate debt business that export to the target countryimporters employees who gain from offshoring retired people on fixed pensionsand people with protected annuity like wages academics government employeesand policy makers  Low inflation therefore tends to favor rentiers increasing their wealth by boosting the purchasing power of their assetsand transfers wealth away from debtors owners of real estateowners of commodities local import sensitive businesses and the insecurely employedIn theory this could be corrected  restoring its neutrality and Pareto improvementhowever transaction costs moral hazard information asymmetry and political resistance would make such wealth transfers grossly impracticalTo the extent that Monetary policy creates a known and predictable transferof wealth between a priori known counterparties it is not a neutral economic tool and cannot be divorced from political considerations and preferred constituenciesFurthermore such constituencies will try to influence choice of monetary policytargets  rentierscreditors and pensioners will prefer tight monetary policy debtors will prefer looser monetary policy as will exporters and other participantsin internationallytradeable sectors of the economy owners of commodities  and real estate and the precariously employedIf redistribution of wealth via such mechanisms has differential efficiencyimpact and impacts the network of business formation and production withinand between trading nations some monetary policy targets may also movean economy away from an efficient frontierMoral Hazard of Monetary Policy Making Agents From a principal agent perspective monetary policy makers face a personal moral hazard  since their compensation typically takes theform of a secure fixed annuity  This would incentivize them to favortight monetary policy  even at the expense of lower real GDP growthCompensation schemes that made their personal wealth inversely relatedto the unemployment rate would create a moral hazard in favor of overlyloose monetary policy  Compensation schemes that made their personal wealth contingent on real GDP growth may be more efficient by reducing theiroverall moral hazard

