Money, price dispersion and welfare
نویسندگان
چکیده
We introduce heterogeneous preferences into a tractablemodel ofmonetary 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.
منابع مشابه
Price dispersion, information and learning
We consider an economy where trade is decentralized and agents have incomplete information with respect to the value of money. Agents’ learning evolves from private experiences and we explore how the formation of prices interacts with learning. We show that multiple equilibria arise, and equilibria with price dispersion entail more learning than equilibria with one price. Price dispersion incre...
متن کاملEndogenous Search , Price Dispersion , and Welfare
This paper studies the welfare cost of inflation in a frictional monetary economy with endogenous consumer search. Equilibrium entails price dispersion, where sellers compete for buyers by posting prices. We identify three channels through which inflation affects welfare. The real balance channel is the source of welfare loss. Its interaction with the price posting channel generates a welfare c...
متن کاملMoney and Credit: Theory and Applications∗
We develop a theory of money and credit as competing payment instruments, then put it to work in applications. Buyers can use cash or credit, with the former (latter) subject to the inflation tax (transaction costs). Frictions making the choice of payment method interesting also imply equilibrium price dispersion, and together these deliver closed-form solutions for money demand. The model can ...
متن کاملMoney and Price Dispersion
We relax restrictions on the storage technology in a prototypical monetary search model to study price dispersion. When multiple units of currency can be stored, buyers and sellers enter matches with potentially different willingness to buy or sell. Across the distribution of possible bilateral matches, prices will generally differ even though agents have identical preferences and technologies....
متن کاملNon Neutrality of Money in Dispersion: Hume Revisited
This paper seeks to explore non neutrality of money in the dispersion of transition process following an unanticipated money injection. It examines the responses of the output and nominal price to shocks. We show that a certain class of money injection schemes will induce quantitatively significant and persistent response in output, sluggish price adjustment, and a short-run negatively-sloped P...
متن کامل