Search and inflation

To understand the macroeconomic aspects of inflation, it is necessary to investigatewhat happens ai the microeconomic level. Inflation affects microeconomic interactionbetween firms and consumers in a substantial way. Firms choose pricing rules that affectconsumer’s search. The search is realized across firms and through time. The theory doesnot provide a clear answer to the effect of inflation on welfare. On one hand, because ofadjustment costs, a higher inflation is associated with a higher dispersion of prices, makingsearch more attractive. On the other hand, it deteriorates the information content of prices,reducing the ability of consumers of taking advantage of search. This article surveys the veryrecent contributions to this field. It argues that although we can get important insights fromthose articles, none of them provide a satisfactory answer to the question that has puzzledmacroeconomists for more than two decades: how to explain the social costs of inflation? JEL Classification: D49; E31.