Money, price dispersion and welfare

Brian Peterson () and Shouyong Shi
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Brian Peterson: Indiana University

A chapter in Recent Developments on Money and Finance, 2006, pp 197-222 from Springer

Abstract: Summary We introduce heterogeneous preferences into a tractable model of monetary search to generate price dispersion, and then examine the effects of money growth on price dispersion and welfare. With buyers’ search intensity fixed, we find that money growth increases the range of (real) prices and lowers welfare as agents shift more of their consumption to less desirable goods.When buyers’ search intensity is endogenous, multiple equilibria are possible. In the equilibrium with the highest welfare level, money growth reduces welfare and increases the range of prices, while having ambiguous effects on search intensity. However, there can be a welfare-inferior equilibrium in which an increase in money growth increases search intensity, increases welfare, and reduces the range of prices.

Keywords: Search Intensity; Money Growth; Price Dispersion; Money Stock; Multiple Steady State (search for similar items in EconPapers)
Date: 2006
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Working Paper: Money, Price Dispersion and Welfare (2006)
Journal Article: Money, price dispersion and welfare (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:spr:steccp:978-3-540-29500-6_10

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DOI: 10.1007/3-540-29500-3_10

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