Recent monetary search models emphasize that the real effects of inflation via its impact on price dispersion depend on … the level of search costs and, thus, on the level of market integration. For less integrated markets, the inflation …-price dispersion nexus is predicted to be asymmetrically V-shaped which implies an optimal inflation rate above zero. For highly …

We empirically identify the effect of inflation on relative price distortions, using a novel identification approach … unobserved shocks. Using the micro price data underlying the U.K. CPI, we document that suboptimally high (or low) inflation is … associated with distortions in relative prices. At the level of individual products, the marginal effect of inflation on relative …