Inflation and GDP Dynamics in Production Networks: A Sufficient Statistics Approach

Hassan Afrouzi and Saroj Bhattarai

No 10416, CESifo Working Paper Series from CESifo

Abstract: We derive closed-form solutions and sufficient statistics for inflation and GDP dynamics in multi-sector New Keynesian economies with arbitrary input-output linkages. Analytically, we decompose how production linkages (1) amplify the persistence of inflation and GDP responses to monetary and sectoral shocks and (2) increase the pass-through of sectoral shocks to aggregate inflation. Quantitatively, we confirm the significant role of production networks in shock propagation, emphasizing the disproportionate effects of sectors with large input-output adjusted price stickiness: The three sectors with the highest contribution to the persistence of aggregate inflation have consumption shares of around zero but explain 16% of monetary non-neutrality.

Keywords: production networks; multi-sector model; sufficient statistics; inflation dynamics; real effects of monetary policy; sectoral shocks (search for similar items in EconPapers)
JEL-codes: C67 E32 E52 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-dge, nep-mfd, nep-mon and nep-net
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Working Paper: Inflation and GDP Dynamics in Production Networks: A Sufficient Statistics Approach (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_10416

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