This paper examines the effects of inflation on the efficiency of the price system, output and welfare, through a model of monopolistic competition with consumer search and (S,s) price setting. Its results have relevance for both search theory and macroeconomics. In particular, it provides a foundation for the conventional wisdom linking higher inflation, through increased price dispersion, to ...

Money demand specifications exhibits instability, especially for long spans of data. This paper reconsiders the welfare cost of inflation for the US economy using a flexible timevarying cointegration methodology to estimate the money demand function. We find evidence that the time-varying cointegration estimation provides a better fit of the actual data than a timeinvariant estimation and that ...

The successful pursuit of the objective of low inflation by central banks in recent decades has also delivered low variability of both inflation and output. At the same time, numerous financial and other "imbalances" (defined here as significant and sustained deviations from historical norms) have emerged. Should these imbalances revert to the mean, there could be significant effects on output ...

everal authors have documented a reduced variability of output and inflation in the United States since the beginning of the 1980s.1 In fact, a comparison of the 1980:1-2001:2 period with the two preceding decades shows that the standard deviation of quarterly output growth has fallen 30 percent, while the standard deviation of inflation has decreased more than 40 percent. These changes in the ...

This paper deals with a critical assessment and a reestimation of the “non–accelerating inflation rate of unemployment” (NAIRU) for Germany. There are quite a few obstacles to perceiving the NAIRU as an understandable and easy–to–use analytical instrument, suitable for economic policy: the possibility of a non–vertical Phillips curve (e.g. in times of low inflation), the occurrence of shocks an...

In this paper we investigate the link between optimal level of leverage and macroeconomic uncertainty. Using the model of firm’s value maximization, we show that as macroeconomic uncertainty increases, captured by an increase in the variability of industrial production or inflation, firms decrease their optimal levels of borrowing. We test this prediction on a panel of non–financial US firms dr...