Inflation and Efficiency in a Search Economy

Chaim Fershtman (), Arthur Fishman () and Avi Simhon
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Avi Simhon: Hebrew University of Jersualem

International Economic Review, 2003, vol. 44, issue 1, 205-222

Abstract: We present a model in which purely monetary inflation systematically affects efficiency, welfare, and relative prices. The model focuses on the microeconomics of trade in search markets under inflation. Inflation, by increasing the cost of holding money, undermines the market's ability to sustain long-term customer relationships. Because those relationships generate the most efficient transactions patterns, overall welfare unambiguously declines. Copyright 2003 By The Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association

Date: 2003
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