Inflation and Changing Expenditure Shares

20 Pages Posted: 6 Dec 2012

See all articles by Alexander L. Wolman

Alexander L. Wolman

Federal Reserve Bank of Richmond

Fan Ding

Federal Reserve Banks - Federal Reserve Bank of Richmond

Date Written: 2005

Abstract

Inflation reflects the joint behavior of price changes for individual goods and expenditure shares of different goods. We measure the contribution of changing expenditure shares to inflation behavior by constructing alternative inflation measures that hold fixed the weights on price changes for different goods. The role of changing expenditure shares is revealed by the divergence between the behavior of actual inflation and the fixed-weight measures. The broad features of inflation over the past 50 years cannot be accounted for by changing expenditure shares. However, in more subtle ways, changing expenditure shares have been important for the behavior of inflation. For example, the shift toward services has tended to make the overall inflation rate higher, other things equal.

Suggested Citation

Wolman, Alexander L. and Ding, Fan, Inflation and Changing Expenditure Shares (2005). FRB Richmond Economic Quarterly, vol. 91, no. 1, Winter 2005, pp. 1-20. Available at SSRN: https://ssrn.com/abstract=2185581

Alexander L. Wolman (Contact Author)

Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

Fan Ding

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

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