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Inflation, inequality, and welfare in a competitive search model

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dc.contributor.authorKam, Timothyen
dc.contributor.authorKao, Tinaen
dc.contributor.authorLee, Junsangen
dc.date.accessioned2026-07-03T23:41:09Z
dc.date.available2026-07-03T23:41:09Z
dc.date.issued2025-05-26en
dc.description.abstractWe study long-run inflation in a competitive-search model with heterogeneous agents. Under competitive search, individuals' matching-probability (extensive) margins trade off against quantity (intensive) margins. With money and unfettered market participation, these trade-offs depend on inflation and individuals' heterogeneous money holdings. We find that welfare falls as inflation increases. However, money-holdings inequality is not monotonic in inflation. As inflation rises, liquid-wealth inequality first falls. For sufficiently high inflation, the overall extensive-margin effect dominates the intensive margin, and liquid-wealth inequality rises. The model also poses a new computational challenge to which we propose a novel solution method.en
dc.description.sponsorshipThis paper was previously circulated under the title “Cost of Inflation and Inequality in a Competitive-search Heterogeneous-agent Model.” We thank the Editor, Associate Editor and three anonymous referees for comments that have improved the paper. We thank Nejat Anbarci, Suren Basov, Chris Carroll, Gaston Chaumont, Jonathan Chiu, Wing Feng, Pedro Gomis-Porqueras, Ippei Fujiwara, Allen Head, Tai-Wei Hu, Benoît Julien, Kuk Mo Jung, Hyung Seok Kim, Ian King, Beverly Lapham, Simon Mishricky, Miguel Molico, Sam Ng, Sihui Ong, Guillaume Rocheteau, Shouyong Shi, John Stachurski, Amy Sun, Serene Tan, Satoshi Tanaka, Chung Tran, Pablo Winant, Liang Wang, and Randall Wright for discussions. We acknowledge funding support through the Australian Research Council’s Discovery Project Grant No. DP180103680. A companion Online Appendix and open-source codes for this work can be found at: https://github.com/phantomachine/csm .en
dc.description.statusPeer-revieweden
dc.identifier.issn1365-1005en
dc.identifier.scopus105006781570en
dc.identifier.urihttps://hdl.handle.net/1885/733812869
dc.language.isoenen
dc.rightsPublisher Copyright: © The Author(s), 2025.en
dc.sourceMacroeconomic Dynamicsen
dc.subjectCompetitive searchen
dc.subjectcomputational geometryen
dc.subjectdistributional trade-offsen
dc.subjectinflationen
dc.titleInflation, inequality, and welfare in a competitive search modelen
dc.typeJournal articleen
dspace.entity.typePublicationen
local.contributor.affiliationKam, Timothy; The Australian National Universityen
local.contributor.affiliationKao, Tina; The Australian National Universityen
local.contributor.affiliationLee, Junsang; Sungkyunkwan Universityen
local.identifier.citationvolume29en
local.identifier.doi10.1017/S136510052500032Xen
local.identifier.pure562fc7bc-1e64-414f-b1d8-5f84a21dff5fen
local.identifier.urlhttps://www.scopus.com/pages/publications/105006781570en
local.type.statusPublisheden

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