| This thesis comprises three essays that examine, using explicitly monetary general equilibrium models, the effects of inflation on the transacting patterns adopted by optimizing agents and the macroeconomic consequences of inflation-induced changes in these patterns. In particular, these essays study the implications of such inflation-induced changes in individual behavior for the structure of demands and prices that characterize the steady state equilibrium of an economy. In doing so they help provide a better understanding of the co-movements between inflation and relative prices found to characterize the economic data of several countries.;The first essay studies the effects of inflation-induced changes in transacting patterns on the relative prices of durable and nondurable commodities. Using a two-good general equilibrium Baumol-Tobin model, here it is shown how, given the role played by money in mediating economic exchanges, changes in inflation alter the effective costs of purchasing and consuming durables and nondurables, leading thereby to changes in the demands for them and hence to changes in their relative prices.;The second essay extends the Baumol-Tobin framework used above to allow for an endogenous determination of the real rate of interest paid out on bonds/bank deposits. The analysis conducted here serves, on the one hand, to provide an explanation for the empirically observed co-movements between inflation and real interest rates prevailing in an economy. In addition, it allows an examination of the robustness of the relative price propositions derived earlier to the constant real interest rate specification assumed there.;The third essay examines the effects of inflation on the relative prices of physical assets, such as durable goods, and financial assets, such as equities, using a simple representative-agent cash-constrained framework. Here it is shown how, in a monetary economy, given a particular difference in the way in which returns on these assets accrue to their holders, changes in inflation alter the real values of the returns they yield, leading thereby to changes in the demands for them and hence to changes in their relative prices. |
