Heterogeneous Inflation Volatility in Production Networks: Producer vs. Consumer Prices

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See all articles by Kohei Hasui

Kohei Hasui

Department of Economics, Aichi University

Teruyoshi Kobayashi

Department of Economics, Kobe University

Date Written: September 26, 2024

Abstract

We investigate the sources of heterogeneity in producer and consumer price inflation rates at both industry and aggregate levels. To this end, we develop a dynamic general equilibrium model with a production network, allowing us to disentangle the effects of producer price stickiness and consumer price stickiness in the transmission of sectoral shocks, a distinction often overlooked in theoretical models. We demonstrate that sectoral cost-push shocks and network connectivity play crucial roles in explaining the relative volatility between producer and consumer price inflation in the U.S. Additionally, we quantify how these sectoral cost-push shocks propagate through cascading changes in producer prices, ultimately influencing the aggregate consumer price.

Keywords: Cost-push shock, inflation volatility, pass-through, production networks

JEL Classification: E31, E32

Suggested Citation

Hasui, Kohei and Kobayashi, Teruyoshi, Heterogeneous Inflation Volatility in Production Networks: Producer vs. Consumer Prices
(September 26, 2024). Available at SSRN: https://ssrn.com/abstract=

Kohei Hasui

Department of Economics, Aichi University ( email )

4-60-6
Hiraike
Nagoya, 453-8777
Japan

Teruyoshi Kobayashi (Contact Author)

Department of Economics, Kobe University ( email )

2-1, Rokkodai
Nada-Ku
Kobe, Hyogo, 657-8501
Japan

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