Seminar by Emiliano Santoro

SALA SEMINARI – 1° PIANO, PALAZZO LEVI CASES, VIA DEL SANTO 33 - ORE 12.30

12.03.2019

Seminar by Emiliano Santoro, University of Copenhagen

Title: "Time-varying Price Flexibility and Inflation Dynamics",joint with I. Petrella and L. Simonsen

Abstract: We study how and to what extent inflation dynamics is shaped by time variation in the capacity of nominal demand to stimulate price adjustment. In doing so, we use microdata underlying the UK consumer price index, and estimate a generalized Ss model of lumpy price adjustment, condensing large cross-sectional information on micro price changes into a measure of price flexibility. The latter displays sizable time variation, which maps into a marked non-linearity of inflation dynamics: the half-life of the rate of inflation is twice as large in periods of relatively low flexibility, along with appearing remarkably close to the one observed in a linear setting. State dependence plays a major role for price setting, with the extensive margin of price adjustment becoming prominent when inflation is particularly high and volatile. Neglecting these facts may severely bias our understanding of inflation dynamics.