Avoiding the Inflation Tax

19 Pages Posted: 27 Apr 2009

See all articles by Huberto M. Ennis

Huberto M. Ennis

Federal Reserve Banks - Federal Reserve Bank of Richmond

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I study the effects of inflation on the purchasing behavior of buyers in the Lagos-Wright monetary economy. The standard framework fails to capture the long-standing intuition that when inflation increases, agents try to spend their money holdings speedily. I propose a simple, realistic extension in which buyers can rebalance their money holdings only sporadically (i.e., not every period). I show that, in such a case, higher inflation can induce buyers to spend their money faster by frontloading their consumption and searching more intensively for transactions. These trade distortions have, traditionally, been associated with the economic costs of inflation.

Suggested Citation

Ennis, Huberto M., Avoiding the Inflation Tax. International Economic Review, Vol. 50, Issue 2, pp. 607-625, May 2009. Available at SSRN: https://ssrn.com/abstract=1394651 or http://dx.doi.org/10.1111/j.1468-2354.2009.00542.x

Huberto M. Ennis (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

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