ON THE TIMING OF PRODUCTION DECISIONS IN MONETARY ECONOMIES

In most macroeconomic models inflation tends to be harmful. In this article, we show that by simply changing the timing of production decisions by firms from “on demand” to “in advance,” some inflation can boost welfare as long as goods are sufficiently perishable. The main conclusion from this research is that by effectively hiding the strategic interaction between supply and demand, assuming production on demand is not without loss of generality.