How inflation affects macroeconomic performance: An agent-based computational investigation

Arbeitspapier

We use an agent-based computational approach to show how inflation can worsen macroeconomic performance by disrupting the mechanism of exchange in a decentralized market economy. We find that increasing the trend rate of inflation above 3 percent has a substantial deleterious effect, but lowering it below 3 percent has no significant macroeconomic consequences. Our finding remains qualitatively robust to changes in parameter values and to modifications to our model that partly address the Lucas critique. Finally, we contribute a novel explanation for why cross-country regressions may fail to detect a significant negative effect of trend in ation on output even when such an effect exists in reality.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 2012-4

Classification and Topics

• Classification: Wirtschaft ; Computational Techniques; Simulation Modeling ; Macroeconomics and Monetary Economics: General ; Price Level; Inflation; Deflation ; Monetary Policy, Central Banking, and the Supply of Money and Credit: General
• Subject: agent-based computational model ; inflation ; price dispersion ; firm turnover ; Inflation ; Makroökonomischer Einfluss ; Gesamtwirtschaftliche Produktion ; Neue klassische Makroökonomik

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Ashraf, Quamrul ; Gershman, Boris ; Howitt, Peter
• Event: Veröffentlichung
• (who): Brown University, Department of Economics
• (where): Providence, RI
• (when): 2012

Further information

• Handle: http://hdl.handle.net/10419/62624
• Last update: 10.03.2025, 11:44 AM CET