A Model of Greedflation

Paul Scanlon ()
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Paul Scanlon: Department of Economics, Trinity College Dublin

Economic Papers from Trinity College Dublin, Economics Department

Abstract: I present a model where firms' pricing power increases with the volatility of the general price level. Confronted with a change in the price of a good, consumers solve a signal extraction problem to infer the good's relative price. Yet general price volatility obscures price signals, and consumers attribute part of any price change to variation in the price level. Ultimately, imperfect information confers firms with greater market power, raises the profit share, and magnifies inflationary shocks. These predictions are in line with recent empirical evidence.

Keywords: Pricelevel; Inflation; InformationalFrictions; InflationVolatility; CorporateProfits; Markups (search for similar items in EconPapers)
JEL-codes: E30 E31 E32 E52 (search for similar items in EconPapers)
Pages: 11 pages
Date: 2023-11
New Economics Papers: this item is included in nep-com, nep-mon and nep-pke
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