Inflation, output, and welfare

Ricardo Lagos, Guillaume Rocheteau

    Research output: Contribution to journalArticle

    Abstract

    We study the effects of anticipated inflation on aggregate output and welfare within a search-theoretic framework. We consider two pricing mechanisms: ex post bargaining and a notion of competitive pricing. Under bargaining, the equilibrium is generically inefficient and an increase in inflation reduces buyers' search intensities, output, and welfare. If prices are posted and buyers can direct their search, search intensities are increasing with inflation for low inflation rates and decreasing for high inflation rates. The Friedman rule achieves the efficient allocation, and inflation always reduces welfare, although it can have a positive effect on output for low inflation rates.

    Original languageEnglish (US)
    Pages (from-to)495-522
    Number of pages28
    JournalInternational Economic Review
    Volume46
    Issue number2
    DOIs
    StatePublished - May 2005

    Fingerprint

    Inflation
    Inflation rate
    Buyers
    Search intensity
    Friedman rule
    Efficient allocation
    High inflation
    Aggregate output
    Pricing
    Pricing mechanism

    ASJC Scopus subject areas

    • Economics and Econometrics

    Cite this

    Inflation, output, and welfare. / Lagos, Ricardo; Rocheteau, Guillaume.

    In: International Economic Review, Vol. 46, No. 2, 05.2005, p. 495-522.

    Research output: Contribution to journalArticle

    Lagos, Ricardo ; Rocheteau, Guillaume. / Inflation, output, and welfare. In: International Economic Review. 2005 ; Vol. 46, No. 2. pp. 495-522.
    @article{8964fe6044644152a37a90f6fd451073,
    title = "Inflation, output, and welfare",
    abstract = "We study the effects of anticipated inflation on aggregate output and welfare within a search-theoretic framework. We consider two pricing mechanisms: ex post bargaining and a notion of competitive pricing. Under bargaining, the equilibrium is generically inefficient and an increase in inflation reduces buyers' search intensities, output, and welfare. If prices are posted and buyers can direct their search, search intensities are increasing with inflation for low inflation rates and decreasing for high inflation rates. The Friedman rule achieves the efficient allocation, and inflation always reduces welfare, although it can have a positive effect on output for low inflation rates.",
    author = "Ricardo Lagos and Guillaume Rocheteau",
    year = "2005",
    month = "5",
    doi = "10.1111/j.1468-2354.2005.00331.x",
    language = "English (US)",
    volume = "46",
    pages = "495--522",
    journal = "International Economic Review",
    issn = "0020-6598",
    publisher = "Wiley-Blackwell",
    number = "2",

    }

    TY - JOUR

    T1 - Inflation, output, and welfare

    AU - Lagos, Ricardo

    AU - Rocheteau, Guillaume

    PY - 2005/5

    Y1 - 2005/5

    N2 - We study the effects of anticipated inflation on aggregate output and welfare within a search-theoretic framework. We consider two pricing mechanisms: ex post bargaining and a notion of competitive pricing. Under bargaining, the equilibrium is generically inefficient and an increase in inflation reduces buyers' search intensities, output, and welfare. If prices are posted and buyers can direct their search, search intensities are increasing with inflation for low inflation rates and decreasing for high inflation rates. The Friedman rule achieves the efficient allocation, and inflation always reduces welfare, although it can have a positive effect on output for low inflation rates.

    AB - We study the effects of anticipated inflation on aggregate output and welfare within a search-theoretic framework. We consider two pricing mechanisms: ex post bargaining and a notion of competitive pricing. Under bargaining, the equilibrium is generically inefficient and an increase in inflation reduces buyers' search intensities, output, and welfare. If prices are posted and buyers can direct their search, search intensities are increasing with inflation for low inflation rates and decreasing for high inflation rates. The Friedman rule achieves the efficient allocation, and inflation always reduces welfare, although it can have a positive effect on output for low inflation rates.

    UR - http://www.scopus.com/inward/record.url?scp=21044460182&partnerID=8YFLogxK

    UR - http://www.scopus.com/inward/citedby.url?scp=21044460182&partnerID=8YFLogxK

    U2 - 10.1111/j.1468-2354.2005.00331.x

    DO - 10.1111/j.1468-2354.2005.00331.x

    M3 - Article

    VL - 46

    SP - 495

    EP - 522

    JO - International Economic Review

    JF - International Economic Review

    SN - 0020-6598

    IS - 2

    ER -