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A Model of Greedflation

Author

Listed:
  • Paul Scanlon

    (Department of Economics, Trinity College Dublin)

Abstract

I present a model where firms' pricing power increases 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. Ultimately, imperfect information confers firms with greater market power, raises the profit share, and magnifies inflationary shocks. These predictions are in line with recent empirical evidence.

Suggested Citation

  • Paul Scanlon, 2023. "A Model of Greedflation," Trinity Economics Papers tep1423, Trinity College Dublin, Department of Economics.
    • Handle: RePEc:tcd:tcduee:tep1423
    as

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    File URL: https://www.tcd.ie/Economics/TEP/2023/TEP1423.pdf
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    References listed on IDEAS

    as
    1. Link, Sebastian & Peichl, Andreas & Roth, Christopher & Wohlfart, Johannes, 2023. "Information frictions among firms and households," Journal of Monetary Economics, Elsevier, vol. 135(C), pages 99-115.
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    Full references (including those not matched with items on IDEAS)

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    Keywords

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    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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