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Author: David Fielding
Publisher:
ISBN:
Category : Inflation (Finance)
Languages : en
Pages : 48
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Author: David Fielding
Publisher:
ISBN:
Category : Inflation (Finance)
Languages : en
Pages : 48
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Author: Viacheslav Sheremirov
Publisher:
ISBN:
Category :
Languages : en
Pages : 49
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From a macroeconomic perspective, price rigidity is often perceived to be an important source of price dispersion, with significant implications for the dynamic properties of aggregate variables, welfare calculations, and the design of optimal policy. For instance, in standard New Keynesian models, the key cost of business cycles stems from the price dispersion resulting from firms' inability to adjust prices instantaneously. However, different macroeconomic models make conflicting predictions about the level of price dispersion, as well as about its dynamic properties and sensitivity to inflation. These contrasting predictions can help us to discriminate across alternative models. This paper examines the link between price dispersion and inflation, and the role of sales in this relationship.
Author: David Fielding
Publisher:
ISBN:
Category :
Languages : en
Pages : 31
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Author: Theresa Christine Van Hoomissen
Publisher:
ISBN:
Category :
Languages : en
Pages : 296
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Author: Emi Nakamura
Publisher:
ISBN:
Category : Inflation (Finance)
Languages : en
Pages :
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A key policy question is: How high an inflation rate should central banks target? This depends crucially on the costs of inflation. An important concern is that high inflation will lead to inefficient price dispersion. Workhorse New Keynesian models imply that this cost of inflation is very large. An increase in steady state inflation from 0% to 10% yields a welfare loss that is an order of magnitude greater than the welfare loss from business cycle fluctuations in output in these models. We assess this prediction empirically using a new dataset on price behavior during the Great Inflation of the late 1970's and early 1980's in the United States. If price dispersion increases rapidly with inflation, we should see the absolute size of price changes increasing with inflation: price changes should become larger as prices drift further from their optimal level at higher inflation rates. We find no evidence that the absolute size of price changes rose during the Great Inflation. This suggests that the standard New Keynesian analysis of the welfare costs of inflation is wrong and its implications for the optimal inflation rate need to be reassessed. We also find that (non-sale) prices have not become more flexible over the past 40 years.
Author: Chaim Fershtman
Publisher:
ISBN:
Category : Equilibrium (Economics)
Languages : en
Pages : 38
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Author: Volker Hahn
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Category :
Languages : en
Pages :
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Author: Sascha Becker
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Category :
Languages : en
Pages :
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Recent monetary search and Calvo-type models predict that the relationship between inflation and price dispersion is U-shaped, implying an optimal rate of inflation above zero. Moreover, monetary search models emphasize a critical dependence of the real effects of inflation on sellers' market power, whereas Calvotype models suggest that the degree of price rigidity significantly affects the inflation - price dispersion nexus. Using a new set of highly disaggregated sectoral price data from a panel of European countries, this paper contributes to the literature by testing the empirical relevance of these two theoretical predictions. In line with monetary search theory, a U-shaped profile is found, provided that markups are sufficiently high, but the relationship breaks down under a more competitive environment. Contrarily, no evidence is found to support the contentions of Calvo-type models: U-shaped effects of inflation occur in product sectors with sticky as well as highly flexible prices. -- Inflation ; Relative price variability ; Price level index ; Euro-area ; Market structure ; Monetary search model ; Dynamic panel data models
Author: Marcio de Oliveira Júnior
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Category :
Languages : en
Pages : 0
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The paper considers the question of information imperfections. The aim is to prove the hypothesis that economic agents make decisions based on imperfect information. In order to do so, it uses correlation between a measure of price dispersion and inflation rates, which are a proxy of the information stock held by agents. Those in favor of the perfectly informed agents theory argue that price dispersion reflects perceived differences in factors like quality, location, market structure and service agreement. If this is correct, changes in price dispersion would occur only if there were changes in these factors. If they are not altered and price dispersion changes, one can come to the conclusion that other factors cause the dispersion. A change in the inflation level brings a good opportunity to look for the other factors. If price dispersion is higher during periods of high inflation rates, this means that the information stock held by agents is one of its determinants. This is due to the hypothesis that the inflation rate is a good proxy of the information stock held by economic agents. Theoretical arguments linking higher inflation to lower information stock are also presented in the paper. So, it can be argued that price dispersion exists partly due to the presence of imperfectly informed agents. A proof for this argument is that price dispersion is higher when the information stock is lower (inflation rates are higher).
Author: Massimo Caruso
Publisher:
ISBN:
Category :
Languages : en
Pages : 84
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