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Money, price dispersion and welfare

  • Brian Peterson
  • Shouyong Shi
Part of the Studies in Economic Theory book series (ECON.THEORY, volume 24)

Summary

We introduce heterogeneous preferences into a tractable model of monetary search to generate price dispersion, and then examine the effects of money growth on price dispersion and welfare. With buyers’ search intensity fixed, we find that money growth increases the range of (real) prices and lowers welfare as agents shift more of their consumption to less desirable goods.When buyers’ search intensity is endogenous, multiple equilibria are possible. In the equilibrium with the highest welfare level, money growth reduces welfare and increases the range of prices, while having ambiguous effects on search intensity. However, there can be a welfare-inferior equilibrium in which an increase in money growth increases search intensity, increases welfare, and reduces the range of prices.

Keywords

Search Intensity Money Growth Price Dispersion Money Stock Multiple Steady State 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Springer-Verlag Berlin Heidelberg 2006

Authors and Affiliations

  • Brian Peterson
    • 1
  • Shouyong Shi
    • 1
    • 2
  1. 1.Department of EconomicsIndiana UniversityBloomingtonUSA
  2. 2.Department of EconomicsUniversity of TorontoTorontoCanada

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