Avoiding the Inflation Tax
نویسنده
چکیده
I study the effects of inflation on the purchasing behavior of buyers in an economy where money is essential for certain transactions (as in Lagos and Wright, 2005). I show that higher inflation induces buyers to search for transactions more intensively and buy goods of worse quality to avoid holding for a prolonged period of time a fast depreciating asset like money. The standard framework fails to capture this kind of effect and the modification proposed in this paper sheds new light on the connection between the search and the inventory models of money.
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