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The Consequences of Price Instability on Search Markets: Toward Understanding the Effects of Inflation

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  • Tommasi, Mariano

Abstract

Real price variability depreciates the information about future prices contained in current ones. Repeat-purchase customers have, then, less incentive to acquire price information. The fact that consumers are less well informed allows firms to increase their markups and permits inefficient producers to increase their sales. Production gets reallocated toward higher-cost firms. Given the well-documented correlation between inflation and relative price variability, these results help explain some of the costs of inflation. Copyright 1994 by American Economic Association.

Suggested Citation

  • Tommasi, Mariano, 1994. "The Consequences of Price Instability on Search Markets: Toward Understanding the Effects of Inflation," American Economic Review, American Economic Association, vol. 84(5), pages 1385-1396, December.
  • Handle: RePEc:aea:aecrev:v:84:y:1994:i:5:p:1385-96
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    Cited by:

    1. Baharumshah, Ahmad Zubaidi & Slesman, Ly & Wohar, Mark E., 2016. "Inflation, inflation uncertainty, and economic growth in emerging and developing countries: Panel data evidence," Economic Systems, Elsevier, vol. 40(4), pages 638-657.
    2. Juan Carlos Echeverry, 1998. "Price Setting In The Argentine And Colombian Manufacturing Industry," BORRADORES DE ECONOMIA 003369, BANCO DE LA REPÚBLICA.
    3. Fernando Merino, 2000. "Price-Adjustment Costs and Adjustment Frequency: An Analysis with Individual Data," Econometric Society World Congress 2000 Contributed Papers 1712, Econometric Society.
    4. Njindan Iyke, Bernard & Ho, Sin-Yu, 2018. "Inflation, Inflation Uncertainty, and Growth: Evidence from Ghana," MPRA Paper 85191, University Library of Munich, Germany.
    5. Zorica Mladenovic & Bent Nielsen, 2009. "The role of income in money demand during hyper-inflation: the case of Yugoslavia," Economics Papers 2009-W02, Economics Group, Nuffield College, University of Oxford.
    6. repec:sbe:breart:v:16:y:1996:i:2:a:2875 is not listed on IDEAS
    7. Michael Bruno & William Easterly, 1996. "Inflation and growth: in search of a stable relationship," Review, Federal Reserve Bank of St. Louis, issue May, pages 139-146.
    8. Tack Yun & Andrew Levin, 2009. "Reconsidering the Microeconomic Foundations of Price-Setting Behavior," 2009 Meeting Papers 798, Society for Economic Dynamics.
    9. Bruno, Michael & Easterly, William, 1998. "Inflation crises and long-run growth," Journal of Monetary Economics, Elsevier, vol. 41(1), pages 3-26, February.
    10. Carlos A. Vegh & Guillermo Vuletin & Daniel Riera-Crichton & Diego Friedheim & Luis Morano & José Andrée Camarena, "undated". "Fiscal Adjustment in Latin America and the Caribbean," World Bank Other Operational Studies 29666, The World Bank.
    11. repec:eee:jetheo:v:176:y:2018:i:c:p:957-986 is not listed on IDEAS
    12. Dabus, C. & Viego, V., 2003. "Inflación, Precios Relativos y Crecimiento: Evidencia de América Latina," Estudios de Economía Aplicada, Estudios de Economía Aplicada, vol. 21, pages 91-107, Abril.
    13. J. Konieczny, A. Skrzpacz, 2006. "Search, Costly Price Adjustment and the Frequency of Price Changes - Theory and Evidence," Working Papers eg0054, Wilfrid Laurier University, Department of Economics, revised 2006.
    14. Paul Beaudry & Mustafa Caglayan & Fabio Schiantarelli, 2001. "Monetary Instability, the Predictability of Prices, and the Allocation of Investment: An Empirical Investigation Using U.K. Panel Data," American Economic Review, American Economic Association, vol. 91(3), pages 648-662, June.
    15. Talan Iscan & Lars Osberg, 1998. "A Note on the Link Between Inflation and Output Variability in Canada," Department of Economics at Dalhousie University working papers archive jmcb97, Dalhousie, Department of Economics.
    16. Kurt Hess & Arthur Grimes & Mark Holmes, 2009. "Credit Losses in Australasian Banking," The Economic Record, The Economic Society of Australia, vol. 85(270), pages 331-343, September.
    17. Robert J. Kauffman & Charles A. Wood, 2007. "Follow the leader: price change timing in Internet-based selling," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(7), pages 679-700.
    18. David Bowman, 2002. "Sticky prices, no menu costs," International Finance Discussion Papers 743, Board of Governors of the Federal Reserve System (U.S.).
    19. Talan Iscan & Lars Osberg, 1998. "Does Inflation Affect Output Varibility? Evidence from 40 Years of US Data," Department of Economics at Dalhousie University working papers archive stabilus, Dalhousie, Department of Economics.
    20. Stanley Fischer, 1995. "Modern Approaches to Central Banking," NBER Working Papers 5064, National Bureau of Economic Research, Inc.

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