Endogenous Search, Price Dispersion, and Welfare

Liang Wang

No 201616, Working Papers from University of Hawaii at Manoa, Department of Economics

Abstract: This paper studies the welfare cost of ináation 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 e§ect. The aggregate e§ect of these three channels on welfare is non-monotonic. Additionally, the welfare cost of ináation áuctuations is negligible.

Keywords: Consumer Search; Inflation; Price Dispersion; Welfare (search for similar items in EconPapers)
JEL-codes: D83 E31 E40 E50 (search for similar items in EconPapers)
Date: 2016-09
New Economics Papers: this item is included in nep-dge, nep-mac, nep-mon and nep-sog
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Citations: View citations in EconPapers (6)

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http://www.economics.hawaii.edu/research/workingpapers/WP_16-16R.pdf First version, 2016 09 (application/pdf)

Related works:
Journal Article: Endogenous search, price dispersion, and welfare (2016)
Working Paper: Endogenous Search, Price Dispersion, and Welfare (2014)
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