The Inflationary Effects of Sectoral Reallocation

Francesco Ferrante, Sebastian Graves and Matteo Iacoviello

No 1369, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: The COVID-19 pandemic has led to an unprecedented shift of consumption from services to goods. We study this demand reallocation in a multi-sector model featuring sticky prices, input-output linkages, and labor reallocation costs. Reallocation costs hamper the increase in the supply of goods, causing inflationary pressures. These pressures are amplified by the fact that goods prices are more flexible than services prices. We estimate the model allowing for demand reallocation, sectoral productivity, and aggregate labor supply shocks. The demand reallocation shock explains a large portion of the rise in U.S. inflation in the aftermath of the pandemic.

Keywords: Sectoral Reallocation; Inflation; Input-Output Models; Moment-matching exercise (search for similar items in EconPapers)
JEL-codes: E10 E17 E31 E32 E37 (search for similar items in EconPapers)
Date: 2023-02-14
New Economics Papers: this item is included in nep-des and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
https://www.federalreserve.gov/econres/ifdp/files/ifdp1369.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:fedgif:1369

DOI: 10.17016/IFDP.2023.1369

Access Statistics for this paper

More papers in International Finance Discussion Papers 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 ().