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Marriott Marquis, Malibu City
Central Bank Research Association & American Economic Association
Inflation and Price Setting
Friday, Jan. 3, 2020 10:15 AM - 12:15 PM (PDT)
- Chair: Luca Dedola, European Central Bank
Using the Retail Distribution to Impute Expenditure Shares
AbstractOnline price data provide a new and rich source of information. But in the absence of information on quantities or expenditure, researchers will treat equally the prices and price behavior across all products within a product group. In doing so, they introduce significant measurement error and potential bias. In this paper, we address this limitation by presenting a simple methodological innovation that allows researchers to impute expenditure when expenditure is not known. With a retail model based on standard assumptions, we show that measures of the retail distribution — which can be computed solely from price observations — provide a good and theoretically consistent proxy for expenditure. Through a series of simulations that use scanner-level price and quantity in-formation on about 85% of the Fast Moving Consumer Goods sold in six Gulf countries,we show that treating all products equally introduces substantial measurement error and bias in the calculation of price stickiness, inflation, and international price differences. But we also show that adding information on the retail distribution reduces measurement error substantially in each of these exercises. Our findings also have important implications for the work of the International Comparison Program.
Monetary Policy, Firms' Inflation Expectations and Prices: Causal Evidence from Firm-Level Data
AbstractWe empirically explore the direct and immediate response of firms’ inflation expectations to monetary policy shocks. We use the Bank of Italy’s quarterly Survey of Inflation and Growth Expectations, in operations since 2000, and compare average point inflation expectations of firms interviewed in the days following scheduled ECB Governing Council meetings with those of firms interviewed just before them; we then relate their difference to the change in nominal market interest rates recorded on Governing Council meeting days, a gauge of the unanticipated component of monetary policy communications. We find that unanticipated changes in market rates are negatively correlated in a statistically significant way with the difference in inflation expectations between the two groups of firms and that this effect becomes stronger since 2009. We do not find evidence that firms’ pricing plans are affected by these monetary policy shocks nor that firms perceive significant changes in the main determinants of their pricing choices.
News-Driven Inflation Expectations and Information Rigidities
AbstractUsing a large news corpus and machine learning algorithms we investigate the role played by the media in the expectations formation process of households, and conclude that the news topics media report on are good predictors of both inflation and inflation expectations. In turn, in a noisy information model, augmented with a simple media channel, we document that the time series features of relevant topics help explain the time-varying information rigidity among households. As such, we provide a novel estimate of state dependent information rigidities, and present new evidence highlighting media's role for understanding inflation expectations and information rigidities.
Harvard Business School
University of Texas-Austin
- E3 - Prices, Business Fluctuations, and Cycles
- L1 - Market Structure, Firm Strategy, and Market Performance