Heterogeneous response of disaggregate inflation to monetary policy regime change: The role of price stickiness

This paper explores how a monetary regime change affects headline inflation via differential effects on various sectors in the economy. Using disaggregated CPI data for Canada, we find that the response to the adoption of inflation targeting (IT) was quite heterogeneous across sectors. While sticky-...

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Veröffentlicht in:Journal of economic dynamics & control 2013-09, Vol.37 (9), p.1814-1832
Hauptverfasser: Choi, Chi-Young, O'Sullivan, Róisín
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description This paper explores how a monetary regime change affects headline inflation via differential effects on various sectors in the economy. Using disaggregated CPI data for Canada, we find that the response to the adoption of inflation targeting (IT) was quite heterogeneous across sectors. While sticky-price sectors experienced a notable change in inflation dynamics following IT adoption, little structural change was observed in flexible price sectors. Our analysis based on a common factor model suggests that the structural changes in the sticky price sectors are driven by a decline in their responses to common aggregate shocks, including a monetary shock.
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subjects Canada
Common factor model
Consumer Price Index
Economic models
Economic theory
Experimental methods
Inflation
Inflation targeting (IT)
Monetary economics
Monetary policy
Monetary policy regime
Monetary theory
Price stickiness
Sectoral inflation dynamics
Structural change
Studies
title Heterogeneous response of disaggregate inflation to monetary policy regime change: The role of price stickiness
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