Pricing cascades – inflation in a networked economy

Mishel Ghassibe and Anton Nakov

Research Bulletin, 2026, vol. 139

Abstract: The post-pandemic inflation surge is often attributed to pent-up demand andopportunistic price hikes. In fact, it is better explained by the effects of theeconomy’s production network and “state-dependent” pricing, where firmschange prices optimally when the reward justifies the effort. Firms are tightlylinked through supply chains so a surge in prices upstream can triggersimultaneous repricing by many layers of firms downstream, fuelling broad-based inflation. Unlike standard models, our euro area model includes theseeffects and successfully reproduces the post-pandemic inflation surge andfaster repricing. This implies analysis of such effects is indispensable formonetary policy JEL Classification: E31, E32

Keywords: inflation; large shocks; menu costs; Networks (search for similar items in EconPapers)
Date: 2026-01
Note: 374708
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