Accounting for the Multiple Sources of Inflation: an Agent-Based Model Investigation

Leonardo Ciambezi, Mattia Guerini, Mauro Napoletano and Andrea Roventini
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Leonardo Ciambezi: Université Côte d'Azur, CNRS, GREDEG, France

No 2023-14, GREDEG Working Papers from Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France

Abstract: In this work, we develop a macroeconomic agent-based model to study the role of demand and supply factors in the determination of inflation dynamics. The model is characterized by local interactions of heterogeneous firms and households in the labor and goods markets. Imperfect information implies that market selection is imperfect, as it does not depend only on relative prices but also on firm size. We show that our model is able of generate realistic inflation dynamics, as well as a non-linear Phillips curve in line with the empirical evidence. We then find that the traditional demand-led explanation of inflation stemming from a tight labor market only holds when markets are competitive and efficient. Finally, we study the response of inflation to shocks impacting on consumption, labor productivity or energy costs. The results show that only demand shocks lead to wage-led inflation surges. Productivity shocks are entirely passed-through to prices without affecting the income distribution. Energy shocks, instead, induce sellers' inflation after changes in both firms' cost structure and profit margins. This is in line the recent empirical evidence for the Euro Area.

Keywords: Inflation; agent-based models; market structure; mark-up rates; sellers' inflation (search for similar items in EconPapers)
JEL-codes: C63 E31 E32 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2023-08, Revised 2024-06
New Economics Papers: this item is included in nep-cmp, nep-hme and nep-mon
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http://195.220.190.85/GREDEG-WP-2023-14.pdf Revised version, 2024-06 (application/pdf)

Related works:
Working Paper: Accounting for the Multiple Sources of Inflation: an Agent-Based Model Investigation (2025)
Working Paper: Accounting for the Multiple Sources of Inflation: an Agent-Based Model Investigation (2025)
Working Paper: Accounting for the Multiple Sources of Inflation: an Agent-Based Model Investigation (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:gre:wpaper:2023-14

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