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Title:How inflation affects macroeconomic performance: An agent-based computational investigation PDF Logo
Authors:Ashraf, Quamrul
Gershman, Boris
Howitt, Peter
Issue Date:2012
Series/Report no.:Working Paper, Brown University, Department of Economics 2012-4
Abstract: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.
Subjects:agent-based computational model
inflation
price dispersion
firm turnover
JEL:C63
E00
E31
E50
Document Type:Working Paper
Appears in Collections:Working Papers, Department of Economics, Brown University

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