Bank of Canada paper captures hot potato effect of inflation

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A Bank of Canada paper published on October 18 identifies a positive hot potato effect of inflation in buyers' spending pattern when faced with rising prices.

Mei Dong and Janet Hua Jiang, the paper's authors, develop a search model where sellers post prices and search is undirected, in the sense that buyers observe the posted prices only after being matched with sellers. By introducing private information about buyers' marginal utility of consumption, the authors examine whether a unique

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