Sectoral inflation persistence, market concentration and imperfect common knowledge

Arbeitspapier

Previous studies have stressed that in ation dynamics exhibit a substantial disper- sion across sectors. Using US producer price data, we present evidence that sectoral in ation persistence is negatively correlated with market concentration, which is diffi- cult to reconcile with the prediction of the standard model of monopolistic competition. To explain the data, we incorporate imperfect common knowledge into the monopolistic competition model introduced by Melitz and Ottaviano (2008). In the model, strategic complementarity among firms increases as market concentration decreases. Because higher strategic complementarity generates greater in ation persistence, our model suc- cessfully replicates the observed negative correlation between in ation persistence and market concentration across sectors.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ISER Discussion Paper ; No. 1082

Classification and Topics

• Classification: Wirtschaft ; Price Level; Inflation; Deflation ; Market Structure, Pricing, and Design: General ; Industrial Organization and Macroeconomics: Industrial Structure and Structural Change; Industrial Price Indices
• Subject: Imperfect common knowledge ; Ination persistence ; Market concentra-tion

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Kato, Ryo ; Okuda, Tatsushi ; Tsuruga, Takayuki
• Event: Veröffentlichung
• (who): Osaka University, Institute of Social and Economic Research (ISER)
• (where): Osaka
• (when): 2020

Further information

• Handle: http://hdl.handle.net/10419/230487
• Last update: 10.03.2025, 11:42 AM CET