Inflation, price dispersion and market integration through the lens of a monetary search model

Sascha S. Becker and Dieter Nautz

European Economic Review, 2012, vol. 56, issue 3, 624-634

Abstract: Monetary search theory implies that the real effects of inflation via its impact on price dispersion depend on the level of search costs and, thus, on the level of market integration. For less integrated markets, the inflation–price dispersion nexus is predicted to be asymmetrically V-shaped which results in an optimal inflation rate above zero. For highly integrated markets with low search costs, however, the impact of inflation on price dispersion should only be small. Using price data of the European Union member states, this paper tests and confirms these predictions of monetary search theory.

Keywords: Inflation; Relative price variability; Monetary search; Market integration (search for similar items in EconPapers)
JEL-codes: C23 D40 E31 F40 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:56:y:2012:i:3:p:624-634

DOI: 10.1016/j.euroecorev.2012.01.004

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