The cost of inflation: A mechanism design approach

Guillaume Rocheteau

Journal of Economic Theory, 2012, vol. 147, issue 3, 1261-1279

Abstract: I apply mechanism design to quantify the cost of inflation that can be attributed to monetary frictions alone. In an environment with pairwise meetings, the money demand that is consistent with an optimal, incentive feasible allocation takes the form of a continuous correspondence that can fit the data over the period 1900–2006. For such parameterizations, the cost of moderate inflation is zero. This result is robust to the introduction of match-specific heterogeneity and endogenous participation decisions.

Keywords: Cost of inflation; Pairwise trades; Optimal mechanism (search for similar items in EconPapers)
JEL-codes: D82 D83 E40 E50 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (15)

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Working Paper: The cost of inflation: a mechanism design approach (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:147:y:2012:i:3:p:1261-1279

DOI: 10.1016/j.jet.2012.01.016

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