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The Effects of Inflation on Market Participation and Search Intensity

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  • Stella Xiuhua Huangfu

Abstract

Inflation leads individuals to work harder to spend and not carry their money holdings. Two alternative margins have been used to model this effect: the extensive margin (the frequency of shopping per period) and the intensive margin (the average shopping time per trip). This paper investigates how inflation affects these two margins. It deviates from the previous literature by allowing individuals to vary both margins simultaneously. The analysis reveals that the impact of inflation on these two margins is determined by the interaction between the opportunity cost of carrying money and direct search costs.

Suggested Citation

  • Stella Xiuhua Huangfu, 2018. "The Effects of Inflation on Market Participation and Search Intensity," The Economic Record, The Economic Society of Australia, vol. 94(304), pages 25-38, March.
    • Handle: RePEc:bla:ecorec:v:94:y:2018:i:304:p:25-38
    DOI: 10.1111/1475-4932.12384
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    References listed on IDEAS

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