Heterogeneous response of disaggregate inflation to monetary policy regime change: The role of price stickiness

Chi-Young Choi and Roisin O'Sullivan

Journal of Economic Dynamics and Control, 2013, vol. 37, issue 9, 1814-1832

Abstract: This paper explores how a monetary regime change affects headline inflation via differential effects on various sectors in the economy. Using disaggregated CPI data for Canada, we find that the response to the adoption of inflation targeting (IT) was quite heterogeneous across sectors. While sticky-price sectors experienced a notable change in inflation dynamics following IT adoption, little structural change was observed in flexible price sectors. Our analysis based on a common factor model suggests that the structural changes in the sticky price sectors are driven by a decline in their responses to common aggregate shocks, including a monetary shock.

Keywords: Price stickiness; Sectoral inflation dynamics; Monetary policy regime; Inflation targeting (IT); Common factor model (search for similar items in EconPapers)
JEL-codes: E31 E52 E58 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:37:y:2013:i:9:p:1814-1832

DOI: 10.1016/j.jedc.2013.04.001

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