Endogenous search, price dispersion, and welfare

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• 作者：Liang Wang ^{lwang2@hawaii.edu}
• 关键词：E31 ; E40 ; E50 ; D83
• 刊名：Journal of Economic Dynamics and Control
• 出版年：2016
• 出版时间：December 2016
• 年：2016
• 卷：73
• 期：Complete
• 页码：94-117
• 全文大小：1012 K
• 卷排序：73

文摘

This paper studies the welfare cost of inflation in a frictional monetary economy with endogenous consumer search. Equilibrium entails price dispersion, where sellers compete for buyers by posting prices. We identify three channels through which inflation affects welfare. The real balance channel is the source of welfare loss. Its interaction with the price posting channel generates a welfare cost larger than Lucas (2000). The search channel reduces the welfare cost by more than one half through general equilibrium effect. The aggregate effect of these three channels on welfare is non-monotonic. Additionally, the welfare cost of inflation fluctuations is negligible.