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Inflation, price dispersion and market integration through the lens of a monetary search model

  • Becker, Sascha
  • Nautz, Dieter

Recent monetary search models emphasize that the real effects of inflation via its impact on price dispersion depend on the level of search costs and, thus, on the level of market integration. For less integrated markets, the inflation-price dispersion nexus is predicted to be asymmetrically V-shaped which implies an optimal inflation rate above zero. For highly integrated markets, however, theory suggests that the impact of inflation on price dispersion disappears. Employing price data of the European Union member states, this paper is the first that empirically tests these implications of monetary search theory.

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Paper provided by Free University Berlin, School of Business & Economics in its series Discussion Papers with number 2010/2.

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Date of creation: 2010
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Handle: RePEc:zbw:fubsbe:20102
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