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Search, Market Power, and Inflation Dynamics

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Author Info
Allen Head () (Department of Economics Queen's University)
Beverly Lapham

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Abstract

The short-run non-neutrality of money and its implications for inflation dynamics are examined in a monetary search economy with heterogeneous agents. Lump-sum money injections affect the distribution of money holdings in equilibrium and thus generate short-run non-neutrality. The response of prices and inflation to shocks of this type depends on the changes in households' search intensity that they induce. Monetary shocks change the distribution of prices in equilibrium and thus alter the returns to search. The resulting changes in optimal search intensity affect sellers' profit maximizing markups and thus may result in sluggish price adjustment and persistent inflation despite the absence of restrictions of sellers; ability to set prices in every period

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File URL: http://repec.org/sed2006/up.27498.1140009845.pdf
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Publisher Info
Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 559.

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Date of creation: 03 Dec 2006
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Handle: RePEc:red:sed006:559

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Related research
Keywords: Price Dispersion; Inflation; Mark-ups; Dynamics;

Find related papers by JEL classification:
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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This page was last updated on 2009-11-26.

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