Some Implications of Micro Price-Setting Evidence for Inflation Dynamics and Monetary Transmission

Dedola, Luca; Gautier, Erwan; Nakov, Anton A.; Santoro, Sergio; Henkel, Lukas; Fagandini, Bruno; Veirman, Emanuel De

doi:10.2139/ssrn.4514761

SSRN Journal

2023

DOI: 10.2139/ssrn.4514761

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Some Implications of Micro Price-Setting Evidence for Inflation Dynamics and Monetary Transmission

Luca Dedola,

Erwan Gautier,

Anton A. Nakov

et al.

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2024

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Cited by 3 publications

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Large Shocks Travel Fast

Cavallo,

Lippi,

Miyahara

2024

American Economic Review: Insights

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We document a sizeable increase in the frequency of price adjustments following the large energy shocks of 2022. We use a tractable New Keynesian model, calibrated to the preshock data, to interpret such a pattern. The calibration highlights the state dependence of firms’ decisions: prices are adjusted rapidly when markups are misaligned. In the model, a large cost shock triggers a swift increase in the frequency of price adjustments, causing a rapid pass-through from costs to prices. Time-dependent models, such as the Calvo model, miss this frequency response, failing to capture the sudden inflation surge after a large shock. (JEL D22, E12, E31, L11, L66, Q43)

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Large Shocks Travel Fast

Cavallo,

Lippi,

Miyahara

2024

American Economic Review: Insights

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New Facts on Consumer Price Rigidity in the Euro Area

Gautier,

Conflitti,

Faber

et al. 2024

American Economic Journal: Macroeconomics

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Using CPI microdata for 11 euro area countries over 2010–2019, we document new findings on consumer price rigidity in the euro area: (i) the average frequency of price changes is 12 percent; (ii) the distribution of price changes is highly dispersed, with frequent large and small changes; (iii) price changes are more frequent in January; and (iv) the overall size of price changes rises with inflation, but their frequency does not; these changes in the size are driven by movements in the fraction of price changes that are increases, not by the absolute size of price increases or decreases. (JEL E31, E52, F33, L11)

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Inflation's Last Half Mile: Higher for Longer?

Verbrugge

2024

EC (FRB Cleveland)

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Will inflation quickly return to the FOMC's target of 2 percent? I explore this question through the lens of the Verbrugge and Zaman (2023) model the VZ model - a structural model whose forecasts are competitive with hard-to-beat forecasting models. The time it takes to get to the target depends on the persistence of inflation, and theory gives mixed signals about whether inflation persistence is currently high or low. The VZ model distinguishes between two sources of inflation persistence, extrinsic and intrinsic, and implies that inflation has high intrinsic persistence. If the extrinsic forces that have lately been pushing down inflation, notably, the resolution of supply chain issues, have run their course, then the last half mile could take several years.

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Some Implications of Micro Price-Setting Evidence for Inflation Dynamics and Monetary Transmission

Cited by 3 publications

References 23 publications

Large Shocks Travel Fast

Large Shocks Travel Fast

New Facts on Consumer Price Rigidity in the Euro Area

Inflation's Last Half Mile: Higher for Longer?

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