Abstract
We present a model in which purely monetary inflation systematically affects efficiency, welfare, and relative prices. The model focuses on the microeconomics of trade in search markets under inflation. Inflation, by increasing the cost of holding money, undermines the market's ability to sustain long-term customer relationships. Because those relationships generate the most efficient transactions patterns, overall welfare unambiguously declines.
Original language | American English |
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Pages (from-to) | 205-222 |
Number of pages | 18 |
Journal | International Economic Review |
Volume | 44 |
Issue number | 1 |
DOIs | |
State | Published - Feb 2003 |