Avoiding the Inflation Tax

Modeling Money and Credit: The New Monetarist View

“…The model in fact can accommodate different trading protocols such as Nash bargaining or Kalai bargaining, perfectly competitive pricing, price posting with competitive search and even exotic optimal mechanisms such as the one proposed by Hu, Kennan and Wallace (). In some versions of the model, the CM and DM open simultaneously and agents transit randomly between them (Williamson ); other models assume multiple rounds of DM trade between CM meetings or vice versa (Berentsen, Camera and Waller ; Telyukova and Wright ; Ennis ); and others use continuous time (Craig and Rocheteau ; Rocheteau and Rodriguez‐Lopez ). Versions of the model include assets other than money such as Lucas trees, capital (Lagos and Rocheteau ; Aruoba, Waller and Wright ) or bonds and are used to study lliquidity in financial markets (Geromichalos and Herrenbrueck ; Mattesini and Nosal ).…”

The Effects of Inflation on Market Participation and Search Intensity

“…In other words, inflation induces individuals to spend money more quickly. This is the so called ‘hot potato’ effect captured in the literature, such as Ennis (), Liu et al . (), Nosal (), and Dong and Jiang ().…”

Money Cycles

“…Note that stimulus is distinct from the hot‐potato effect. Ennis () was motivated to study the hot‐potato effect to find a mechanism by which inflation might stimulate output. In his model, the hot‐potato effect causes inflation to increase the number of transactions, but also to reduce transaction sizes.…”

“…The microfounded monetary literature also includes several papers that explore whether inflation can stimulate economic activity. Ennis () finds that inflation can increase search activity but does not investigate the effect on productive activities; he also finds that agents front‐load consumption. Nosal () studies a stylized model in which buyers are sent to the back of the queue after trading, which leads to a perverse incentive to avoid trade.…”