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A model of greedflation

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  • Scanlon, Paul

Abstract

I present a model where desired markups increase with the volatility of the general price level. Confronted with a change in the price of a good, consumers solve a signal extraction problem to infer the good’s relative price. Yet general price volatility obscures price signals, and consumers attribute part of any price change to variation in the price level. This confers firms with greater market power, which in turn raises the aggregate profit share and magnifies inflationary shocks. These predictions are in line with recent empirical evidence.

Suggested Citation

  • Scanlon, Paul, 2024. "A model of greedflation," Economics Letters, Elsevier, vol. 234(C).
    • Handle: RePEc:eee:ecolet:v:234:y:2024:i:c:s0165176523004780
    DOI: 10.1016/j.econlet.2023.111452
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    More about this item

    Keywords

    Inflation; Inflation volatility; Imperfect Information; Corporate profits; Markups;
    All these keywords.

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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