Disaggregated Price Index Research Articles

Comment on “The long and variable lags of monetary policy: Evidence from disaggregated price indices” by S. Borağan Aruoba and Thomas Drechsel

The vast majority of the literature on the effects of monetary policy shocks has considered their impacts on aggregate variables, including aggregate prices. The paper by Borağan Aruoba and Thomas Drechsel studies the impacts of monetary policy on the components of PCE. It documents considerable variability in the impulse response functions across components and finds that monetary policy shocks have large but very delayed effects on price aggregates. The finding of cross-sectional variability and it’s implications are very convincing, The large but delayed effects on aggregates may be more dependent on methodology and shock identification.

The long and variable lags of monetary policy: Evidence from disaggregated price indices

We study how monetary policy affects subcomponents of the Personal Consumption Expenditures Price Index (PCEPI) using local projections. Following a monetary policy contraction, the response of aggregate PCEPI turns significantly negative after over three years. There are stark differences in the timing and magnitude of the responses across price categories, including some prices that show an initially positive response. We discuss theoretical interpretations of our findings and point to useful directions for future theoretical research. We also show how to re-aggregate our cross-sectional estimates and their standard errors, taking into account dependence between different prices using a Seemingly Unrelated Regression approach. Re-aggregation exercises show that changes in expenditure behavior have not accelerated the long-lagged response of inflation to monetary policy.

The Long and Variable Lags of Monetary Policy: Evidence from Disaggregated Price Indices

The Long and Variable Lags of Monetary Policy: Evidence from Disaggregated Price Indices

Has the Euro Shrunk the Band? Relative Purchasing Power Parity Convergence in a Currency Union*

AbstractI study the effects of entry to the European Monetary Union (EMU) on relative purchasing power parity (PPP) convergence using monthly disaggregated price indices from 32 European countries from 1999 to 2016. I examine the entry of Cyprus, Malta, Slovakia, and Slovenia to the EMU, and I estimate the bands of inaction of relative prices before and after entry using a threshold autoregressive model. I find a positive effect of the EMU on relative PPP convergence: after entry, the bands of inaction with EMU members fell by 17 percent. Cross‐sectional evidence supports the theoretical prediction that bands of inaction are related to transaction costs.

Determinants of Low Inflation in an Emerging, Small Open Economy through the Lens of Aggregated and Disaggregated Approach

ABSTRACTWe analyze the sources of the protracted period of exceptionally low inflation in the emerging, small open economy of Poland using a structural Bayesian Vector Autoregression (BVAR) identified with a mixture of zero and sign restrictions. We find that excessive disinflation has been caused by deteriorating domestic conditions whilst deflation has resulted from the convolution of waning global demand and plummeting oil prices. Disaggregated analysis corroborates the conclusion from the aggregated approach but reveals considerable heterogeneities in the sensitivity of inflation components to the identified shocks. We conclude that the structural analysis on the disaggregated price indices unveils additional information for the monetary policy conduct.

Gelişmekte olan Ülkelerde Döviz Kuru Geçişkenliği üzerine Bir Literatür Taraması

This article reviews the literature on exchange rate pass-through in emerging markets with a special focus on the burgeoning empirical research. The literature has overwhelmingly agreed on the recent decline in the pass through in low inflationary environment after the adoption of inflation targeting in many countries. However, the empirical evidences also suggest varying degrees of the pass-through depending on the size and direction of exchange rate changes. Finally, researches on the exchange rate pass-through on disaggregated price indices or the differential pass-through due to the source of exchange rate changes are becoming promising research strands for the estimation of the pass through.

Disaggregated inflation rate in the monetary policy of the central bank

This article aims at presenting the results of the research concerning disaggregated price index in the assessment of inflation processes in Poland. Presented analysis shows that isaggregated approach allows for a fuller understanding of the nature of the price-setting process and etter identification of factors affecting inflation. The results indicate three conclusions. Firstly, a significant part of the inflation in Poland is dependent on domestic factors. Secondly, the core inflation rate should not be equated with the measure of demand pressures in the economy. Thirdly, a set of external factors affecting the price-setting process in Poland is relatively wide and distinct for different components of the price index.

Global or Domestic? Which Shocks Drive Inflation in European Small Open Economies?

ABSTRACTWe investigate which shocks drive inflation in small open economies. In the first step, we use the structural vector autoregressive (SVAR) approach to identify the global shocks. Second, we regress the disaggregated price indices for selected European economies on the global shocks controlling for the domestic variables. We find that the fluctuations of inflation in the analyzed countries are to large extent determined by the cyclical movements of the domestic output gap however the commodity shock also contributes strongly to inflation variability. The role of the non-commodity global supply shock is less prominent, however, interpreted to some extent as a globalization shock, for most of the analyzed period lowers the inflation. Nonetheless, in the aftermath of the global financial crisis, this shock reversed what may be interpreted as the weakening of the globalization process.

Global or Domestic? Which Shocks Drive Inflation in European Small Open Economies?

In the paper we investigate, which shocks drive inflation in small open economies. We proceed in two steps. First, we use the SVAR approach to identify the global shocks. In the second step we regress the disaggregated price indices for selected European economies - the Czech Republic, Poland and Sweden - on the global shocks controlling for the domestic variables. Our results show that in two out of three analyzed countries the fluctuations of inflation are to the largest extent determined by the cyclical movements of the domestic output gap with the commodity shock being also the important source of inflation variability while for the third country the contribution of the commodity shock dominates over the output gap in explaining inflation fluctuations. We find that the direct impact of the global demand shock on the price dynamics is negligible, while it affects the country’s inflation mainly through the domestic output gap. The role of the non-commodity global supply shock is less prominent, however, this shock, interpreted to some extent as a globalization shock, for most of the analyzed period lowers the prices of semi-durable and durable goods and therefore the inflation. Nonetheless, in the aftermath of the global financial crisis, this shock reversed what may be interpreted as a weakening of the globalization process.

Forecasting euro area inflation using dynamic factor measures of underlying inflation

Standard measures of prices are often contaminated by transitory shocks. This has prompted economists to suggest the use of measures of underlying inflation to formulate monetary policy and assist in forecasting observed inflation. Recent work has concentrated on modelling large data sets using factor models. In this paper we estimate factors from data sets of disaggregated price indices for European countries. We then assess the forecasting ability of these factor estimates against other measures of underlying inflation built from more traditional methods. The power to forecast headline inflation over horizons of 12 to 18 months is adopted as a valid criterion to assess forecasting. Empirical results for the five largest euro area countries, as well as for the euro area itself, are presented. Copyright © 2005 John Wiley & Sons, Ltd.

A note on modelling core inflation for the UK using a new dynamic factor estimation method and a large disaggregated price index dataset

The term ‘core inflation’ is widely used by academics and central bankers, though there is no widely accepted definition or agreed method of measuring it. In this paper, we propose a new measure of core inflation which is atheoretical but assumes factor structure for the disaggregated price indices which underlie most constructed measures of inflation. We show that the measure of core inflation obtained has added predictive ability for inflation in the UK over a relatively long evaluation period.

Modelling Core Inflation for the UK Using a New Dynamic Factor Estimation Method and a Large Disaggregated Price Index Dataset

Recent work in the macroeconometric literature considers the problem of summarising efficiently a large set of variables and using this summary for a variety of purposes including forecasting. This paper applies a new factor extraction method to the extraction of core inflation and forecasting of UK inflation in the recent past.

Forecasting Euro Area Inflation Using Dynamic Factor Measures of Underlying Inflation

Standard measures of prices are often contaminated by transitory shocks. This has prompted economists to suggest the use of measures of underlying inflation to formulate monetary policy and assist in forecasting observed inflation. Recent work has concentrated on modelling large datasets using factor models. In this paper we estimate factors from datasets of disaggregated price indices for European countries. We then assess the forecasting ability of these factor estimates against other measures of underlying inflation built from more traditional methods. The power to forecast headline inflation over horizons of 12 to 18 months is adopted as a valid criterion to assess forecasting. Empirical results for the five largest euro area countries as well as for the euro area are presented.

The Impact of Economic Reform on Productivity Growth in Chinese Industry: A Case of Xiamen Special Economic Zone

China's industrial and trade reforms were expected to stimulate growth in output and welfare by increasing the capacity of industry to absorb surplus factors of production, and by utilizing labour, capital, energy and materials more efficiently. The impact of the special economic zone reform policies on productivity and growth is assessed by studies of China's overall industrial sector performance and case studies in Xiamen and Shanghai Beijing, which is not subject to special policy initiatives, is used as a control. Although there were data limitations, several conclusions may be drawn.An increase in total factor productivity was found to have occurred in Xiamen during the reform period, but the creation of the special economic zone does not appear to have had a significant impact on productivity.Productivity performance in Beijing's state‐owned industry was considerably poorer than that of total Xiamen industry, including state, collective and firms jointly owned with foreign investors, and was also lower than the productivity performance of Xiamen's state sector. The productivity performance of Xiamen's joint ventures and collectively owned firms was, however, considerably superior to the state sectors in both cities.Due to data constraints, the analysis of productivity in Shanghai was for a shorter period. Most of Shanghai's state‐owned industry did better than the state‐owned sector in Beijing but did not perform as well as the non‐State sector in Xiamen over this period. Factor productivity in Shanghai industry was stagnant, Beijing's industrial productivity generally declined, but Xiamen's productivity improved considerably over the decade.One of the major strengths of this study is its access to new and more accurate disaggregated price indices to deflate capital investments on an industry by industry basis. Hence, the availability of the new capital stock deflator series should improve the total factor productivity estimates considerably.