Superneutrality and the welfare effects of inflationGuillaume Rocheteau () and Ricardo Lagos () No 93, 2004 Meeting Papers from Society for Economic Dynamics Abstract: This paper studies the long-run effects of anticipated inflation on output and welfare within a search-theoretic framework. We allow money-holders to choose the intensities with which they search for trading partners, so the frequency of trades is endogenous. We consider the standard pricing mechanism for search models, i.e., ex-post bargaining, as well as two notions of competitive pricing. If prices are bargained over ex-post, an increase in inflation reduces buyers' search intensities, aggregate output and welfare. Alternatively, if agents are assumed to be price-takers and prices are such that markets clear, it is possible for a mild inflation to increase search intensities, output, velocity and welfare. The equilibrium is generically inefficient under either of these two pricing mechanisms. Finally, if prices are posted and buyers can direct their search (competitive search), buyers' 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 output effect for low inflation rates Keywords: money; search; inflation (search for similar items in EconPapers) There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: http://EconPapers.repec.org/RePEc:red:sed004:93 Access Statistics for this paper More papers in 2004 Meeting Papers from Society for Economic Dynamics |
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