The Long and Variable Lags of Monetary Policy: Evidence from Disaggregated Price Indices

S. Boragan Aruoba and Thomas Drechsel

No 32623, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: C10 E31 E52 E58 (search for similar items in EconPapers)
Date: 2024-06
New Economics Papers: this item is included in nep-ban, nep-cba and nep-mon
Note: ME
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Citations: View citations in EconPapers (1)

Published as S. Borağan Aruoba & Thomas Drechsel, 2024. "The long and variable lags of monetary policy: Evidence from disaggregated price indices," Journal of Monetary Economics, .
Forthcoming: The Long and Variable Lags of Monetary Policy: Evidence from Disaggregated Price Indices , S. Borağan Aruoba, Thomas Drechsel. in Inflation in the COVID Era and Beyond , Ball and Gorodnichenko. 2024

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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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