Frictional Goods Markets: Theory and Applications

59 Pages Posted: 4 Feb 2016 Last revised: 15 Jun 2019

See all articles by Zachary Bethune

Zachary Bethune

University of Virginia

Michael Choi

University of California, Irvine

Randall Wright

University of Wisconsin - Madison - Department of Finance, Investment and Banking; Federal Reserve Banks - Federal Reserve Bank of Minneapolis

Date Written: June 13, 2019

Abstract

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

Bethune, Zachary and Choi, Michael and Wright, Randall D., Frictional Goods Markets: Theory and Applications (June 13, 2019). Available at SSRN: https://ssrn.com/abstract=2727597 or http://dx.doi.org/10.2139/ssrn.2727597

Zachary Bethune

University of Virginia ( email )

1400 University Ave
Charlottesville, VA 22903
United States

Michael Choi (Contact Author)

University of California, Irvine ( email )

3151 Social Science Plaza
Irvine, CA 92697-5100
United States

Randall D. Wright

University of Wisconsin - Madison - Department of Finance, Investment and Banking ( email )

975 University Avenue
Madison, WI 53706
United States
608-263-3860 (Phone)

Federal Reserve Banks - Federal Reserve Bank of Minneapolis

90 Hennepin Avenue
Minneapolis, MN 55480
United States

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