This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Inflation, output and welfare

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Ricardo Lagos
Guillaume Rocheteau

Additional information is available for the following registered author(s):

Abstract

This paper studies the effects of anticipated inflation on aggregate output and welfare within a search-theoretic framework. We allow money-holders to choose the intensities with which they search for trading partners, so inflation affects the frequency of trade as well as the quantity of output produced in each trade. We consider the standard pricing mechanism for search models, i.e., ex post bargaining, as well as a notion of competitive pricing. If prices are bargained over, the equilibrium is generically inefficient and an increase in inflation reduces buyers? search intensities, output and welfare. If prices are posted and buyers can direct their search, search intensities are increasing with inflation for low inflation rates and decreasing for high inflation rates. The Friedman Rule achieves the first-best allocation and inflation always reduces welfare even though it can have a positive effect on output for low inflation rates.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help file. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://minneapolisfed.org/research/sr/sr342.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by Federal Reserve Bank of Minneapolis in its series Staff Report with number 342.

Download reference. The following formats are available: HTML, plain text, BibTeX, RIS (EndNote), ReDIF
Length:
Date of creation: 2004
Date of revision:
Publication status: Published in International Economic Review> (Vol. 46, No. 2, May 2005, pp. 495-522)
Handle: RePEc:fip:fedmsr:342

Contact details of provider:
Postal: 90 Hennepin Avenue, P.O. Box 291, Minneapolis, MN 55480-0291
Phone: (612) 204-5000
Web page: http://minneapolisfed.org/
More information through EDIRC

Order Information:
Email:
Web: http://www.minneapolisfed.org/pubs/

For technical questions regarding this item, or to correct its listing, contact: (Diane Rosenberger).

Related research
Keywords: Inflation (Finance) Welfare

Other versions of this item:

This paper has been announced in the following NEP Reports: References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Lagos, Ricardo & Wright, Randall, 2003. "Dynamics, cycles, and sunspot equilibria in 'genuinely dynamic, fundamentally disaggregative' models of money," Journal of Economic Theory, Elsevier, vol. 109(2), pages 156-171, April. [Downloadable!] (restricted)
    Other versions:
  2. Robert G. King & Mark W. Watson, 1997. "Testing long-run neutrality," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 69-101. [Downloadable!]
    Other versions:
  3. Green, Edward J. & Zhou, Ruilin, 1998. "A Rudimentary Random-Matching Model with Divisible Money and Prices," Journal of Economic Theory, Elsevier, vol. 81(2), pages 252-271, August. [Downloadable!] (restricted)
    Other versions:
  4. Robert E. Lucas, Jr., 2000. "Inflation and Welfare," Econometrica, Econometric Society, vol. 68(2), pages 247-274, March.
  5. Rapach, David E, 2003. " International Evidence on the Long-Run Impact of Inflation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(1), pages 23-48, February.
  6. James Bullard, 1999. "Testing long-run monetary neutrality propositions: lessons from the recent research," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 57-77. [Downloadable!]
  7. Shouyong Shi, 1997. "A Divisible Search Model of Fiat Money," Econometrica, Econometric Society, vol. 65(1), pages 75-102, January.
    Other versions:
  8. Bullard, James & Keating, John W., 1995. "The long-run relationship between inflation and output in postwar economies," Journal of Monetary Economics, Elsevier, vol. 36(3), pages 477-496, December. [Downloadable!] (restricted)
  9. Ricardo Lagos & Randall Wright, 2002. "A unified framework for monetary theory and policy analysis," Working Paper 0211, Federal Reserve Bank of Cleveland. [Downloadable!]
    Other versions:
  10. Shi Shougong, 1995. "Money and Prices: A Model of Search and Bargaining," Journal of Economic Theory, Elsevier, vol. 67(2), pages 467-496, December. [Downloadable!] (restricted)
    Other versions:
  11. Trejos, Alberto & Wright, Randall, 1995. "Search, Bargaining, Money, and Prices," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 118-41, February. [Downloadable!] (restricted)
  12. Aleksander Berentsen & Guillaume Rocheteau & Shouyong Shi, 2007. "Friedman Meets Hosios: Efficiency in Search Models of Money," Economic Journal, Royal Economic Society, vol. 117(516), pages 174-195, 01. [Downloadable!] (restricted)
    Other versions:
  13. Moen, Espen R, 1997. "Competitive Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 385-411, April.
    Other versions:
  14. Lucas, Robert Jr. & Prescott, Edward C., 1974. "Equilibrium search and unemployment," Journal of Economic Theory, Elsevier, vol. 7(2), pages 188-209, February. [Downloadable!] (restricted)
  15. Kiyotaki, Nobuhiro & Wright, Randall, 1993. "A Search-Theoretic Approach to Monetary Economics," American Economic Review, American Economic Association, vol. 83(1), pages 63-77, March. [Downloadable!] (restricted)
  16. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Blackwell Publishing, vol. 57(2), pages 279-98, April. [Downloadable!] (restricted)
  17. Kiyotaki, Nobuhiro & Wright, Randall, 1991. "A contribution to the pure theory of money," Journal of Economic Theory, Elsevier, vol. 53(2), pages 215-235, April. [Downloadable!] (restricted)
    Other versions:
  18. Kocherlakota, Narayana R., 1998. "Money Is Memory," Journal of Economic Theory, Elsevier, vol. 81(2), pages 232-251, August. [Downloadable!] (restricted)
    Other versions:
  19. Li, Victor E, 1995. "The Optimal Taxation of Fiat Money in Search Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(4), pages 927-42, November. [Downloadable!] (restricted)
  20. Berentsen, Aleksander & Rocheteau, Guillaume, 2002. "On the efficiency of monetary exchange: how divisibility of money matters," Journal of Monetary Economics, Elsevier, vol. 49(8), pages 1621-1649, November. [Downloadable!] (restricted)
    Other versions:
  21. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-54, August. [Downloadable!] (restricted)
  22. Lucas, Robert E, Jr, 1996. "Nobel Lecture: Monetary Neutrality," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 661-82, August. [Downloadable!] (restricted)
  23. Weimin Wang & Shouyong Shi, 2006. "The Variability of Velocity of Money in a Search Model," Working Papers tecipa-190, University of Toronto, Department of Economics. [Downloadable!]
    Other versions:
  24. Li, Victor E, 1997. "The Efficiency of Monetary Exchange in Search Equilibrium," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 61-72, February.
  25. Guillaume Rocheteau & Randall Wright, 2003. "Money in Search Equilibrium, in Competitive Equilibrium, and in Competitive Search Equilibrium," PIER Working Paper Archive 03-031, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania. [Downloadable!]
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Miquel Faig & Belén Jerez, 2006. "Inflation, Prices, and Information in Competitive Search," Advances in Macroeconomics, Berkeley Electronic Press, vol. 6(1), pages 1313-1313. [Downloadable!] (restricted)
    Other versions:
  2. Andolfatto, David, 2007. "Essential Interest-Bearing Money," MPRA Paper 4780, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  3. Andolfatto, David, 2007. "Incentives and the Limits to Deflationary Policy," MPRA Paper 4681, University Library of Munich, Germany, revised 02 Sep 2007. [Downloadable!]
    Other versions:
  4. Aleksander Berentsen & Christopher Waller, 2008. "Outside Versus Inside Bonds," IEW - Working Papers iewwp372, Institute for Empirical Research in Economics - IEW. [Downloadable!]
  5. Huberto M. Ennis, 2007. "Avoiding the inflation tax," Working Paper 07-06, Federal Reserve Bank of Richmond. [Downloadable!]
    Other versions:
  6. Tai-wei Hu & John Kennan & Neil Wallace, 2007. "Pairwise-core Monetary Trade in the Lagos-Wright Model," NBER Working Papers 13310, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Aleksander Berentsen & Gabriele Camera & Christopher Waller, 2005. "Money, Credit and Banking," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
    Other versions:
Statistics
Access and download statistics

Did you know? All RePEc services are meant to be be free forever, as they are all run by volunteers.

This page was last updated on 2008-8-8.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.