Conventional wisdom is that inflation makes people spend money faster, trying to get rid of it like a “hot potato,” and … this is a channel through which inflation affects velocity and welfare. Monetary theory with endoge- nous search intensity … seems ideal for studying this. However, in standard models, inflation is a tax that lowers the surplus from monetary …

We study the effects of inflation in models with various trading frictions. The framework is related to recent search … model, under posting the cost of inflation is similar to previous estimates, around 1% of consumption. Under bargaining, it … is considerably bigger, between 3% and 5%. Under price taking, the cost of inflation depends on parameters, but tends to …

We develop a theoretical framework to account for the observed instability of the link between inflation and fiscal … bank that has full control over inflation. When policy makers deviate from this Virtuous regime, agents conduct Bayesian … pessimistic about a prompt return to the Virtuous regime and inflation starts drifting in response to a fiscal imbalance. Shocks …