Sectoral inflation under fragmentation of information

Tatsushi Okuda and Tomohiro Tsuruga
Authors registered in the RePEc Author Service: Rosella Levaggi

Macroeconomic Dynamics, 2025, vol. 29, -

Abstract: We examine the role of fragmentation of information in explaining the dynamics of sectoral inflation. Using the quarterly survey of firms’ prices and costs in Japan, we first document two empirical facts: the sensitivity of sectoral inflation to changes in sectoral costs monotonically decreases with the dispersion of changes in (i) current costs and (ii) those in the past. A direct application of the dispersed information model can reconcile the fact (i) but fails to reconcile the fact (ii). We then extend the standard imperfect information model to construct a dynamic general equilibrium model that features fragmentation of information, wherein a finite number of groups of firms exist and firms in the same group share common idiosyncratic noises in their signals. Using this model, we find that the degree of fragmentation of information plays a crucial role in explaining these empirical facts.

Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:cup:macdyn:v:29:y:2025:i::p:-_69

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