Papers

The Effect of Inflation on Market Participation and Search Intensity ( 348.7 KB )
Abstract
Inflation changes individuals´ trading behavior and, as clearly pointed out by Lucas (2000), one of the reasons is that inflation induces individuals to spend extra efforts to get rid of their money holdings. The two alternative margins that have been used to model this effect are the extensive margin (e.g., frequency of shopping per period) and the intensive margin (e.g., average shopping time per trip). This paper investigates the effect of inflation on these two margins. It deviates from the previous literature by allowing individuals to vary both margins simultaneously. I conclude that if the returns to search are strongly decreasing, individuals carry money and participate in the market every day throughout a period. Therefore, inflation can affect only the intensive margin. If the returns to search are close to constant, individuals find it optimal to exert all their efforts on shopping on each trip, but not to go shopping every day. Hence, inflation varies only the extensive margin. There exists an intermediate region of returns to search where inflation affects both margins.

Competitive Search Equilibrium with Private Information on Monetary Shocks ( 329.6 KB )
Abstract
The relationship between unanticipated inflation and output has been a classic issue in macroeconomics. This paper studies the effects of monetary uncertainty on output in a competitive search environment where there is asymmetric information about monetary shocks. I conclude that in a decentralized environment with asymmetric information, in order to generate real output effects, no real shocks are needed. When the realization of the monetary shock is privately observed by buyers, sellers offer more output when the economy experiences a positive monetary shock. In other words, money is not neutral. This contrasts with the centralized Walrasian market environment, where prices adjust proportionally to changes in the quantity of money, and where nominal shocks by themselves have no real output effects.