Global versus local shocks in micro price dynamics

Philippe Andrade and Marios Zachariadis

Working papers from Banque de France

Abstract: A number of recent papers point to the importance of distinguishing between the price reaction to micro and macro shocks in order to reconcile the volatility of individual prices with the observed persistence of aggregate inflation. We emphasize instead the importance of distinguishing between global and local shocks. We exploit a panel of 276 micro price levels collected on a semi-annual frequency from 1990 to 2010 across 88 cities in 59 countries around the world, that enables us to distinguish between different types (local and global) of micro and macro shocks. We find that global shocks have more persistent effects on prices as compared to local ones e.g. prices respond faster to local macro shocks than to global micro ones, implying that the relatively slow response of prices to macro shocks documented in recent studies comes from global rather than local sources. Global macro shocks have the most persistent effect on prices, with the majority of goods and locations sharing a single source of trend over time stemming from these shocks. Finally, both local macro and local micro shocks are associated with relatively fast price convergence.

Keywords: global shocks; local shocks; micro shocks; macro shocks; price adjustment; micro-macro gap; price-setting models; micro prices. (search for similar items in EconPapers)
JEL-codes: C23 E31 F4 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2012
New Economics Papers: this item is included in nep-mac and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Global versus local shocks in micro price dynamics (2016)
Working Paper: Global Versus Local Shocks in Micro Price Dynamics (2012)
Working Paper: Global Versus Local Shocks in Micro Price Dynamics (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:365

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