Does inflation targeting reduce the dispersion of price setters' inflation expectations?

Arbeitspapier

Using detailed Swedish micro data on prices and costs, this paper documents a decrease in the dispersion of changes in prices and markups following the introduction of an official inflation target of 2 percent. Using a structural model to decompose the change in the price-change distribution by potential explanatory factors, about 63 percent of the decrease in the price-change dispersion can be attributed to a decrease in the cross-sectional variance of inflation expectations. The lower dispersion of inflation expectations results in a lower markup dispersion and a welfare gain equivalent to a 0.79 percent increase in consumption.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Sveriges Riksbank Working Paper Series ; No. 370

Classification and Topics

• Classification: Wirtschaft ; Expectations; Speculations ; Monetary Policy ; Production, Pricing, and Market Structure; Size Distribution of Firms
• Subject: Inflation targeting ; price setting ; misallocation ; welfare

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Paulie, Charlotte
• Event: Veröffentlichung
• (who): Sveriges Riksbank
• (where): Stockholm
• (when): 2019

Further information

• Handle: http://hdl.handle.net/10419/215448
• Last update: 10.03.2025, 11:44 AM CET