Inflation and the Informativeness of Prices
AbstractThis paper studies the welfare effects of the relative-price variability arising from inflation. If customers and suppliers form long-term relationships, prices have an informational role: a potential customer uses current prices as signals of future prices. Inflation reduces the informativeness of current prices, causing customers to make costly mistakes about which relationships to enter. In addition, the reduced informativeness of prices makes demand less price elastic, thereby increasing markups. Both effects can be quantitatively significant at moderate inflation rates.
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Bibliographic InfoArticle provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.
Volume (Year): 35 (2003)
Issue (Month): 2 (April)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879
Other versions of this item:
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
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