Frictional Goods Markets: Theory and Applications
59 Pages Posted: 4 Feb 2016 Last revised: 15 Jun 2019
Date Written: June 13, 2019
We analyze dynamic general equilibrium models with more-or-less directed search by informed buyers and random search by uninformed buyers. This nests existing specifications and generates new insights. A quantitative application concerns the welfare cost of inflation, which is known to be quite high with pure random search and low with pure directed search. Our calibration implies the impact of inflation is fairly low, in part because, in addition to the usual costs, it provides benefits by more heavily taxing high-price sellers that inefficiently profit from exploiting the uninformed. Other applications analyze analytically and numerically changes in credit conditions and information.
Keywords: Information, Money, Inflation, Credit, Search, Pricing
JEL Classification: E31, E51, E52, E42
Suggested Citation: Suggested Citation