The building blocks of inflation: The role of monetary policy and the gap between goods and services

Sacha Gelfer

Journal of Economic Dynamics and Control, 2026, vol. 186, issue C

Abstract: I build and estimate a three-region structural macroeconomic model with a goods, services, housing and oil sector. The model also has meaningful household portfolio decisions over foreign and domestic bond holdings and financial intermediation to investigate the efficacy of large-scale asset purchases (LSAP) by a central bank. The model is built and estimated to ensure that the potential causes that have been pointed to as a reason for the global inflation seen in the COVID recovery economy are accounted for. Examining the dynamics of the model, LSAPs conducted in an economy with relative high demand for goods rather than services will lead to a bigger expansionary and inflationary impact than in an economy where demand for services is relatively higher than goods. I also find that LSAPs are more expansionary and inflationary when the service sector is incurring supply shocks. These findings help us understand why LSAPs conducted in the global financial crisis had such a different impact than those conducted in the COVID economy.

Keywords: Goods and service sectors; Unconventional monetary policy; International bond portfolio; DSGE; Oil and the business cycle; Financial accelerator; Housing sector (search for similar items in EconPapers)
JEL-codes: E44 E5 E52 E63 F41 F42 (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:186:y:2026:i:c:s0165188926000448

DOI: 10.1016/j.jedc.2026.105298

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