Inflation, output, and welfare

Ricardo Lagos and Guillaume Rocheteau

No 407, Working Papers (Old Series) from Federal Reserve Bank of Cleveland

Abstract: This paper studies the effects of anticipated inflation on aggregate output and welfare within a search-theoretic framework. We allow money-holders to choose the intensities with which they search for trading partners, so inflation affects the frequency of trade as well as the quantity of output produced in each trade. We consider the standard pricing mechanism for search models, i.e., ex-post bargaining, as well as a notion of competitive pricing. If prices are bargained over, the equilibrium is generically inefficient and an increase in inflation reduces buyers? search intensities, output, and welfare. If prices are posted and buyers can direct their search, search intensities are increasing with inflation for low inflation rates and decreasing for high inflation rates. The Friedman rule achieves the first best allocation and inflation always reduces welfare even though it can have a positive effect on output for low inflation rates.

Keywords: Inflation; (Finance) (search for similar items in EconPapers)
Date: 2004
New Economics Papers: this item is included in nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.26509/frbc-wp-200407 Persistent link
https://www.clevelandfed.org/-/media/project/cleve ... -and-welfare-pdf.pdf Full text (application/pdf)

Related works:
Journal Article: INFLATION, OUTPUT, AND WELFARE (2005)
Working Paper: Inflation, output and welfare (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedcwp:0407

Ordering information: This working paper can be ordered from

DOI: 10.26509/frbc-wp-200407

Access Statistics for this paper

More papers in Working Papers (Old Series) from Federal Reserve Bank of Cleveland Contact information at EDIRC.
Bibliographic data for series maintained by 4D Library ().