IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Global versus local shocks in micro price dynamics

  • Andrade, P.
  • Zachariadis, M.

A number of recent papers point to the importance of distinguishing between the price reaction to micro and macro shocks in order to reconcile the volatility of individual prices with the observed persistence of aggregate inflation. We emphasize instead the importance of distinguishing between global and local shocks. We exploit a panel of 276 micro price levels collected on a semi-annual frequency from 1990 to 2010 across 88 cities in 59 countries around the world, that enables us to distinguish between different types (local and global) of micro and macro shocks. We find that global shocks have more persistent effects on prices as compared to local ones e.g. prices respond faster to local macro shocks than to global micro ones, implying that the relatively slow response of prices to macro shocks documented in recent studies comes from global rather than local sources. Global macro shocks have the most persistent effect on prices, with the majority of goods and locations sharing a single source of trend over time stemming from these shocks. Finally, both local macro and local micro shocks are associated with relatively fast price convergence.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.banque-france.fr/uploads/tx_bdfdocumentstravail/DT365_01.pdf
Download Restriction: no

Paper provided by Banque de France in its series Working papers with number 365.

as
in new window

Length: 48 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:bfr:banfra:365
Contact details of provider: Postal: Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS
Web page: http://www.banque-france.fr/

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Charles Engel & John H. Rogers, 2004. "European product market integration after the euro," Economic Policy, CEPR;CES;MSH, vol. 19(39), pages 347-384, 07.
  2. Etienne Gagnon, 2006. "Price Setting during Low and High Inflation: Evidence from Mexico," 2006 Meeting Papers 300, Society for Economic Dynamics.
  3. Maurice Obstfeld and Kenneth Rogoff., 2000. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," Center for International and Development Economics Research (CIDER) Working Papers C00-112, University of California at Berkeley.
  4. Jean Imbs & Haroon Mumtaz & Morton O. Ravn & Helene Rey, 2002. "PPP Strikes Back: Aggregation and the Real Exchange Rate," NBER Working Papers 9372, National Bureau of Economic Research, Inc.
  5. Ricardo Reis, 2006. "Inattentive Producers," Review of Economic Studies, Oxford University Press, vol. 73(3), pages 793-821.
  6. Goldberg, Pinelopi K. & Verboven, Frank, 2005. "Market integration and convergence to the Law of One Price: evidence from the European car market," Journal of International Economics, Elsevier, vol. 65(1), pages 49-73, January.
  7. Jean Boivin & Marc P. Giannoni & Ilian Mihov, 2009. "Sticky Prices and Monetary Policy: Evidence from Disaggregated US Data," American Economic Review, American Economic Association, vol. 99(1), pages 350-84, March.
  8. Fernando E. Alvarez & Francesco Lippi & Luigi Paciello, 2011. "Optimal Price Setting With Observation and Menu Costs," The Quarterly Journal of Economics, Oxford University Press, vol. 126(4), pages 1909-1960.
  9. Mark Gertler & John Leahy, 2006. "A Phillips curve with an Ss foundation," Working Papers 06-8, Federal Reserve Bank of Philadelphia.
  10. Hakan Yilmazkuday & Mario Crucini, 2009. "A Model of International Cities: Implications for Real Exchange Rates," 2009 Meeting Papers 1271, Society for Economic Dynamics.
  11. Pinelopi K. Goldberg & Michael M. Knetter, 1996. "Goods Prices and Exchange Rates: What Have We Learned?," NBER Working Papers 5862, National Bureau of Economic Research, Inc.
  12. Maćkowiak, Bartosz & Wiederholt, Mirko, 2009. "Optimal sticky prices under rational inattention," Working Paper Series 1009, European Central Bank.
  13. Tommaso Monacelli & Luca Sala, 2009. "The International Dimension of Inflation: Evidence from Disaggregated Consumer Price Data," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(s1), pages 101-120, 02.
  14. Carlos Carvalho & Fernanda Nechio, 2011. "Aggregation and the PPP Puzzle in a Sticky-Price Model," American Economic Review, American Economic Association, vol. 101(6), pages 2391-2424, October.
  15. Mario J. Crucini & Mototsugu Shintani, 2006. "Persistence in Law-Of-One-Price Deviations: Evidence from Micro-Data," Vanderbilt University Department of Economics Working Papers 0616, Vanderbilt University Department of Economics.
  16. Mikhail Golosov & Robert E. Lucas, 2003. "Menu Costs and Phillips Curves," NBER Working Papers 10187, National Bureau of Economic Research, Inc.
  17. Altissimo, Filippo & Mojon, Benoit & Zaffaroni, Paolo, 2009. "Can aggregation explain the persistence of inflation?," Journal of Monetary Economics, Elsevier, vol. 56(2), pages 231-241, March.
  18. Crucini, Mario J. & Shintani, Mototsugu & Tsuruga, Takayuki, 2010. "Accounting for persistence and volatility of good-level real exchange rates: The role of sticky information," Journal of International Economics, Elsevier, vol. 81(1), pages 48-60, May.
  19. Matteo Ciccarelli & Benoît Mojon, 2008. "Global inflation," Working Paper Series WP-08-05, Federal Reserve Bank of Chicago.
  20. M. Hashem Pesaran, 2007. "A simple panel unit root test in the presence of cross-section dependence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 265-312.
  21. Carlos Carvalho, 2005. "Heterogeneity in Price Setting and the Real Effects of Monetary Shocks," Macroeconomics 0509017, EconWPA, revised 12 Sep 2005.
  22. Mario Crucini & Chris Telmer & Marios Zachariadis, 2003. "Price dispersion: The role of distance, borders and location," GSIA Working Papers 2004-E25, Carnegie Mellon University, Tepper School of Business.
  23. Jae Won Lee & Carlos Carvalho, 2010. "Sectoral Price Facts in a Sticky-Price Model," 2010 Meeting Papers 997, Society for Economic Dynamics.
  24. Mark Bils & Peter J. Klenow, 2004. "Some Evidence on the Importance of Sticky Prices," Journal of Political Economy, University of Chicago Press, vol. 112(5), pages 947-985, October.
  25. Mirko Wiederholt & Emanuel Moench & Bartosz Maćkowiak, 2009. "Sectoral Price Data and Models of Price Setting," 2009 Meeting Papers 666, Society for Economic Dynamics.
  26. Hellwig, Christian & Veldkamp, Laura, 2007. "Knowing What Others Know: Coordination Motives in Information Acquisition," CEPR Discussion Papers 6506, C.E.P.R. Discussion Papers.
  27. Carvalho Carlos, 2006. "Heterogeneity in Price Stickiness and the Real Effects of Monetary Shocks," The B.E. Journal of Macroeconomics, De Gruyter, vol. 6(3), pages 1-58, December.
  28. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
  29. M. Hashem Pesaran, 2006. "Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure," Econometrica, Econometric Society, vol. 74(4), pages 967-1012, 07.
  30. De Graeve, Ferre & Walentin, Karl, 2011. "Refining Stylized Facts from Factor Models of Inflation," Working Paper Series 254, Sveriges Riksbank (Central Bank of Sweden), revised 01 Oct 2013.
  31. Patrick J. Kehoe & Virgiliu Midrigan, 2007. "Sticky prices and sectoral real exchange rates," Working Papers 656, Federal Reserve Bank of Minneapolis.
  32. Christian Broda & David E. Weinstein, 2008. "Understanding International Price Differences Using Barcode Data," NBER Working Papers 14017, National Bureau of Economic Research, Inc.
  33. Mirko Wiederholt, 2010. "rational inattention," The New Palgrave Dictionary of Economics, Palgrave Macmillan.
  34. Emi Nakamura & Jón Steinsson, 2008. "Five Facts about Prices: A Reevaluation of Menu Cost Models," The Quarterly Journal of Economics, MIT Press, vol. 123(4), pages 1415-1464, November.
  35. Patrick J. Kehoe & Virgiliu Midrigan, 2010. "Prices are Sticky After All," NBER Working Papers 16364, National Bureau of Economic Research, Inc.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:bfr:banfra:365. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael brassart)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.