This paper studies the welfare cost of in ‡ation in a frictional monetary economy with endogenous consumer search. Equilibrium entails price dispersion, where sellers compete for buyers by posting prices. We identify three channels through which in ‡ation a¤ects welfare. The real balance channel is the source of welfare loss. Its interaction with the price posting channel generates a welfare cost larger than Lucas (2000). The search channel reduces the welfare cost by more than one half through general equilibrium e¤ect. The aggregate e¤ect of these three channels on welfare is non-monotonic. Additionally, the welfare cost of in ‡ation ‡uctuations is negligible.

This note studies the trade of indivisible goods using credit or money in a frictional market. We show how indivisibility matters for monetary equilibrium under di¤erent assumptions about price determination. Bargaining generates a price and allocation that are independent of the nominal interest or in ‡ation rate over some range. This is not the case with price posting and directed search. In either case, we provide conditions (the nominal rate cannot be too high) under which stationary monetary equilibrium exists, and we show it is unique or generically unique.

We study asset liquidity in a search-theoretic framework where divisible assets can facilitate exchange for an indivisible consumption good. The distinctive characteristics of our theory are that the asset dividend can be either positive or negative and buyers can choose whether or not to carry the asset and trade for the indivisible good. Buyers' participation determines the demand for asset liquidity and hence asset price carries a component of liquidity premium to re ‡ect its function of trade facilitation. The economy features multiple equilibria when the asset dividend is negative, due to the trade-o¤ between the probability of trade and the endogenous cost of holding the asset. JEL: D51, E40, G12.