A model of greedflation

Paul Scanlon

Economics Letters, 2024, vol. 234, issue C

Abstract: I present a model where desired markups increase with the volatility of the general price level. Confronted with a change in the price of a good, consumers solve a signal extraction problem to infer the good’s relative price. Yet general price volatility obscures price signals, and consumers attribute part of any price change to variation in the price level. This confers firms with greater market power, which in turn raises the aggregate profit share and magnifies inflationary shocks. These predictions are in line with recent empirical evidence.

Keywords: Inflation; Inflation volatility; Imperfect Information; Corporate profits; Markups (search for similar items in EconPapers)
JEL-codes: E30 E31 E32 E52 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:234:y:2024:i:c:s0165176523004780

DOI: 10.1016/j.econlet.2023.111452

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