Inflation and Efficiency in a Search Economy

18 Pages Posted: 12 May 2003

See all articles by Chaim Fershtman

Chaim Fershtman

Tel Aviv University - Eitan Berglas School of Economics; Tinbergen Institute

Arthur Fishman

Bar-Ilan University - Department of Economics

Avi Simhon

Hebrew University of Jerusalem

Abstract

We present a model in which purely monetary inflation systematically affects efficiency, welfare, and relative prices. The model focuses on the microeconomics of trade in search markets under inflation. Inflation, by increasing the cost of holding money, undermines the market's ability to sustain long-term customer relationships. Because those relationships generate the most efficient transactions patterns, overall welfare unambiguously declines.

Suggested Citation

Fershtman, Chaim and Fishman, Arthur and Simhon, Avi, Inflation and Efficiency in a Search Economy. Available at SSRN: https://ssrn.com/abstract=377088

Chaim Fershtman (Contact Author)

Tel Aviv University - Eitan Berglas School of Economics ( email )

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel
+972 3 640 7167 (Phone)
+972 3 640 9908 (Fax)

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Arthur Fishman

Bar-Ilan University - Department of Economics ( email )

Ramat-Gan, 52900
Israel
972-3-531-8366 (Phone)
972 3 535 3180 (Fax)

Avi Simhon

Hebrew University of Jerusalem ( email )

Mount Scopus
Jerusalem 91905, Jerusalem 91905
Israel
+972 2 588 3237 (Phone)
+972 2 581 6071 (Fax)

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