The Effects of Inflation on Market Participation and Search Intensity
Stella Xiuhua Huangfu
The Economic Record, 2018, vol. 94, issue 304, 25-38
Inflation leads individuals to work harder to spend and not carry their money holdings. Two alternative margins have been used to model this effect: the extensive margin (the frequency of shopping per period) and the intensive margin (the average shopping time per trip). This paper investigates how inflation affects these two margins. It deviates from the previous literature by allowing individuals to vary both margins simultaneously. The analysis reveals that the impact of inflation on these two margins is determined by the interaction between the opportunity cost of carrying money and direct search costs.
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