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Pricing cascades – inflation in a networked economy

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  • Ghassibe, Mishel
  • Nakov, Anton

Abstract

The post-pandemic inflation surge is often attributed to pent-up demand andopportunistic price hikes. In fact, it is better explained by the effects of theeconomy’s production network and “state-dependent” pricing, where firmschange prices optimally when the reward justifies the effort. Firms are tightlylinked through supply chains so a surge in prices upstream can triggersimultaneous repricing by many layers of firms downstream, fuelling broad-based inflation. Unlike standard models, our euro area model includes theseeffects and successfully reproduces the post-pandemic inflation surge andfaster repricing. This implies analysis of such effects is indispensable formonetary policy JEL Classification: E31, E32

Suggested Citation

  • Ghassibe, Mishel & Nakov, Anton, 2026. "Pricing cascades – inflation in a networked economy," Research Bulletin, European Central Bank, vol. 139.
    • Handle: RePEc:ecb:ecbrbu:2026:0139:
    Note: 374708
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    References listed on IDEAS

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    2. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
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    Keywords

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    JEL classification:

    • 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

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