Credit Markets and the Welfare Costs of Inflation / Jose De Gregorio, Federico Sturzenegger.

Format:

Book

Author/Creator:

De Gregorio, Jose.

Contributor:

National Bureau of Economic Research.

Sturzenegger, Federico.

Series:

Working Paper Series (National Bureau of Economic Research) no. w4873.

NBER working paper series no. w4873

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1994.

Summary:

We construct a simple model in which high inflation imposes welfare costs because it affects the ability of the financial sector to screen between high and low cost producers. Consumers search for a low price and inflation reduces the incentives to search, resulting in an increase in the demand of high cost producers. We show that beyond a certain level of inflation there is a switch from a separating equilibrium to a pooling equilibrium, where financial institutions become unable to distinguish among clients. In this pooling equilibrium a larger share of credit is allocated to less efficient firms.

Notes:

Print version record

October 1994.