Deflation/Inflation Dynamics: Analysis based on Micro Prices

Hiroshi Yoshikawa, Hideaki Aoyama, Yoshi Fujiwara and Hiroshi Iyetomi
Additional contact information
Hiroshi Yoshikawa: Faculty of Economics, The University of Tokyo
Hideaki Aoyama: Graduate School of Science, Kyoto University and Research Institute of Economy, Trade and Industry (RIETI)
Yoshi Fujiwara: Graduate School of Simulation Studies, The University of Hyogo,
Hiroshi Iyetomi: Department of Mathematics, Niigata University,

No CIRJE-F-959, CIRJE F-Series from CIRJE, Faculty of Economics, University of Tokyo

Abstract: Micro price data shows that individual price settings are not time-invariant as presumed in the existing literature. Furthermore, the analysis of autocorrelations shows that interactions of micro prices with leads and lags ignored in the literature play a very important role in explaining the behavior of aggregate price index. The price index such as CPI contains \noises" for the purpose of macroeconomics and monetary policy. The "core" CPI used by central banks is, however, defined merely on common sense and casual observation. We present a new method of extracting information on the systemic changes of the aggregate price based on micro price data. The "true core price index" so defined is correlated with over-time hours worked, the unemployment rate, and the exchange rate. It is not significantly correlated with money supply. Our analysis also shows that inertia arising from interactions of micro prices more plausibly explains the behavior of aggregate price than expectations. --

Pages: 61 pages
Date: 2015-02
New Economics Papers: this item is included in nep-mon
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Citations: View citations in EconPapers (3)

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