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Inflation, price dispersion and market integration through the lens of a monetary search model

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  • Becker, Sascha S.
  • Nautz, Dieter

Abstract

Monetary search theory implies that the real effects of inflation via its impact on price dispersion depend on the level of search costs and, thus, on the level of market integration. For less integrated markets, the inflation–price dispersion nexus is predicted to be asymmetrically V-shaped which results in an optimal inflation rate above zero. For highly integrated markets with low search costs, however, the impact of inflation on price dispersion should only be small. Using price data of the European Union member states, this paper tests and confirms these predictions of monetary search theory.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 56 (2012)
Issue (Month): 3 ()
Pages: 624-634

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Handle: RePEc:eee:eecrev:v:56:y:2012:i:3:p:624-634

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Web page: http://www.elsevier.com/locate/eer

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Keywords: Inflation; Relative price variability; Monetary search; Market integration;

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Cited by:
  1. Enno Mammen & Christoph Rothe & Melanie Schienle, 2010. "Nonparametric Regression with Nonparametrically Generated Covariates," SFB 649 Discussion Papers SFB649DP2010-059, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  2. Sascha S. Becker, 2011. "What Drives the Relationship Between Inflation and Price Dispersion? Market Power vs. Price Rigidity," SFB 649 Discussion Papers SFB649DP2011-019, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  3. Basteck, Christian & Daniëls, Tijmen R., 2011. "Every symmetric 3×3 global game of strategic complementarities has noise-independent selection," Journal of Mathematical Economics, Elsevier, vol. 47(6), pages 749-754.

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