Arbeitspapier

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

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.

Language
Englisch

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

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

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

Handle
Last update
10.03.2025, 11:44 AM CET

Data provider

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ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.

Object type

  • Arbeitspapier

Associated

  • Paulie, Charlotte
  • Sveriges Riksbank

Time of origin

  • 2019

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