The Missing Inflation Puzzle: The Role of the Wage-Price Pass-Through / Sebastian Heise, Fatih Karahan, Ayşegül Şahin.

Format:

Book

Author/Creator:

Heise, Sebastian.

Contributor:

National Bureau of Economic Research.

Karahan, Fatih.

Şahin, Ayşegül.

Series:

Working Paper Series (National Bureau of Economic Research) no. w27663.

NBER working paper series no. w27663

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2020.

Summary:

Price inflation in the U.S. has been sluggish and slow to pick up in the last two decades. We show that this missing inflation can be traced to a growing disconnect between unemployment and core goods inflation. We exploit rich industry-level data to show that weakening pass-through from wages to prices in the goods-producing sector is an important source of the slow inflation pick-up in the last two decades. We set up a theoretical framework where markups and pass-through are a function of firms' market shares and show that increased import competition and rising market concentration reduce pass-through from wages to prices. We then use industry-level data and find strong support for these two channels consistent with the implications of our model.

Notes:

Print version record

August 2020.