Greed? Profits, Inflation, and Aggregate Demand

Florin Bilbiie and Känzig, Diego
Authors registered in the RePEc Author Service: Diego Raoul Känzig

No 18385, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Abstract We investigate whether corporate profits can drive elevated inflation through the interplay of income distribution dynamics and aggregate demand—our narrow definition of the “greed†narrative†—within the New Keynesian framework. We first derive an analytical condition for profits to be procyclical and thus inflationary in response to demand expansions. Yet when distributional mechanisms are of the essence, as under the “greed†view, a conundrum emerges: procyclical profits accruing to low-MPC asset-holders imply a dampening of aggregate demand, yielding deflationary forces—the opposite of “greedflation†. Adding capital investment undoes part of this as it delivers aggregate-demand amplification even under procyclical profits, but the deflationary effects of the latter are still operating in a compensating way. Countercyclical income risk can deliver the amplified inflationary response; yet since this operates through a precautionary-saving channel and not profits, it is still inconsistent with the narrative directly attributing inflation to corporate greed.

Keywords: Aggregate; demand (search for similar items in EconPapers)
JEL-codes: D11 E32 E52 E62 (search for similar items in EconPapers)
Date: 2023-08
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP18385 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Working Paper: Greed? Profits, Inflation, and Aggregate Demand (2023)
Working Paper: Greed? Profits, Inflation, and Aggregate Demand (2023)
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:cpr:ceprdp:18385

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP18385

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().