Inflation in Disaggregated Small Open Economies

Álvaro Silva

Papers from arXiv.org

Abstract: This paper studies inflation in small open economies with production networks. I show that the production network alters the elasticity of the consumer price index (CPI) to changes in sectoral technology, factor prices, and import prices. Sectors can import and export directly but also indirectly through domestic intermediate inputs. Indirect exporting dampens the inflationary pressure from domestic forces, while indirect importing increases the inflation sensitivity to import price changes. Computing these CPI elasticities requires knowledge of the production network structure as these do not coincide with typical sufficient statistics used in the literature, such as sectoral sales-to-GDP ratios, factor shares, or imported consumption shares. Using input-output tables, I provide empirical evidence that adjusting CPI elasticities for indirect exports and imports matters quantitatively for small open economies. I use the model to illustrate the importance of production networks during the recent COVID-19 inflation in Chile and the United Kingdom.

Date: 2024-10
New Economics Papers: this item is included in nep-int, nep-mon, nep-net and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/2410.00705 Latest version (application/pdf)

Related works:
Working Paper: Inflation in Disaggregated Small Open Economies (2024)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2410.00705

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().