Relative prices and pure inflation since the mid-1990s

Hie Joo Ahn and Matteo Luciani
Additional contact information
Hie Joo Ahn: https://www.federalreserve.gov/econres/hie-joo-ahn.htm

No 2021-069, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This paper decomposes consumer price inflation into pure inflation, relative price inflation, and idiosyncratic inflation by estimating a dynamic factor model á la Reis and Watson (2010) on a data set of 146 monthly disaggregated prices from 1995 to 2019. We find that pure inflation is the trend around which PCE price inflation fluctuates, while relative price inflation and idiosyncratic inflation drive the fluctuation of PCE price inflation around the trend. Unlike Reis and Watson, we find that labor market slack is the main driver of pure inflation and that energy prices account for variation in relative price inflation.

Keywords: Pure inflation; Relative price inflation; Phillips correlations; Dynamic factor model; Disaggregated consumer prices; Monetary policy (search for similar items in EconPapers)
JEL-codes: C32 C43 C55 E31 E52 (search for similar items in EconPapers)
Pages: 18 p.
Date: 2021-10-20
New Economics Papers: this item is included in nep-cwa, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.federalreserve.gov/econres/feds/files/2021069pap.pdf (application/pdf)

Related works:
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:fip:fedgfe:2021-69

DOI: 10.17016/FEDS.2021.069

Access Statistics for this paper

More papers in Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.) Contact information at EDIRC.
Bibliographic data for series maintained by Ryan Wolfslayer ; Keisha Fournillier ().