Inflation tax in the lab: a theoretical and experimental study of competitive search equilibrium with inflation |
| |
| Institution: | 1. Department of Economics, Deakin University, 70 Elgar Road, Burwood VIC 3125, Australia;2. OECD Economics Department, 2, rue André Pascal, 75775 Paris Cedex 16, France;3. Department of Economics, Monash University, Clayton VIC 3800, Australia;1. Finance Center Muenster, University of Muenster, Universitaetsstr. 14-16, 48143 Muenster, Germany;2. Mercator School of Management, University of Duisburg–Essen, Lotharstr. 65, 47057 Duisburg, Germany;1. University of Technology Sydney, UTS Business School, PO Box 123, Broadway, NSW 2007, Australia;2. Sun Yat-Sen University, Sun Yat-Sen Business School, No. 135, West Xingang Road, Guangzhou 510275, PR China;1. Department of Economics, University of Glasgow, Adam Smith Building, Glasgow G12 8QQ, United Kingdom;2. School of Mathematics and Statistics, University of Sydney, Sydney, Australia;3. University Pierre and Marie Curie, Paris, France |
| |
| Abstract: | In this paper we measure the effect of the inflation tax on economic activity and welfare within a controlled setting. To do so, we develop a model of price posting and monetary exchange with inflation and finite populations. The model, which provides a game–theoretic foundation to Rocheteau and Wright (2005)׳s competitive search monetary equilibrium, is used to derive theoretical propositions regarding the effects of inflation in this environment, which we test with a laboratory experiment that closely implements the theoretical framework. We find that the inflation tax is harmful – with cash holdings, production and welfare all falling as inflation rises – and that its effect is relatively larger at low inflation rates than at higher rates. For instance, for inflation rates between 0% and 5%, welfare in the two markets we consider (2seller]×2buyer] and 3×2) falls by roughly 1 percent for each percentage–point rise in inflation, compared with 0.4 percent over the range from 5% to 30%. Our findings lead us to conclude that the impact of the inflation tax should not be underestimated, even under low inflation. |
| |
| Keywords: | Money Directed search Posted price Welfare loss Friction Experiment |
| 本文献已被 ScienceDirect 等数据库收录！ |
|
