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

Hassan Afrouzi and Saroj Bhattarai

No 31218, NBER Working Papers from National Bureau of Economic Research, Inc

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 show how (1) production linkages amplify inflation and GDP persistence in response to monetary and sectoral shocks and (2) monetary policies that stabilize price indices or the GDP gap affect shock propagation. Quantitatively, sectors with large input-output adjusted price stickiness have disproportionate effects relative to their GDP shares: The three sectors with the highest contribution to the persistence of aggregate inflation have GDP shares of around zero but explain 16% of monetary non-neutrality.

JEL-codes: C67 E32 E52 (search for similar items in EconPapers)
Date: 2023-05
New Economics Papers: this item is included in nep-dge, nep-mon and nep-net
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Working Paper: Inflation and GDP Dynamics in Production Networks: A Sufficient Statistics Approach (2023)
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