The long and variable lags of monetary policy: Evidence from disaggregated price indices

Boragan Aruoba and Thomas Drechsel

No 19175, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We study how monetary policy affects subcomponents of the Personal Consumption Expenditures Price Index (PCEPI) using local projections. Following a monetary policy contraction, the response of aggregate PCEPI turns significantly negative after over three years. There are stark differences in the timing and magnitude of the responses across price categories, including some prices that show an initially positive response. We discuss theoretical interpretations of our findings and point to useful directions for future theoretical research. We also show how to re-aggregate our cross-sectional estimates and their standard errors, taking into account dependence between different prices using a Seemingly Unrelated Regression approach. Re-aggregation exercises show that changes in expenditure behavior have not accelerated the long-lagged response of inflation to monetary policy.

Keywords: Monetary policy; Federal Reserve; Price indices; Local projections (search for similar items in EconPapers)
JEL-codes: C10 E31 E52 E58 (search for similar items in EconPapers)
Date: 2024-06
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Related works:
Chapter: The Long and Variable Lags of Monetary Policy: Evidence from Disaggregated Price Indices (2024)
Journal Article: The long and variable lags of monetary policy: Evidence from disaggregated price indices (2024)
Working Paper: The Long and Variable Lags of Monetary Policy: Evidence from Disaggregated Price Indices (2024)
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