Nationalekonomiska institutionen

Ekonomihögskolan vid Lunds universitet

Seminar in Macroeconomics and Econometrics: Emiliano Santoro, Copenhagen University


“Time-varying Price Flexibility and Inflation Dynamics”


We study how and to what extent inflation dynamics is shaped by time variation in the capacity of nominal demand to stimulate price adjustment. Using microdata underlying the UK consumer price  index, we estimate a generalized Ss model of lumpy price adjustment, and condense large cross-sectional information on micro price changes into a measure of price  flexibility. The latter displays sizable time variation, which maps into a marked non-linearity of inflation dynamics: the half-life of the rate of inflation is twice as large in periods of relatively low flexibility, along with appearing remarkably close to the one observed in a linear setting. Changes in firms' price-adjustment cost structure, as reflected in the adjustment hazard, are key to account for state dependence in price setting. Neglecting these facts may severely bias our understanding of inflation dynamics.

Joint work with Ivan Petrella and Lasse de la Porte Simonsen. 


31 maj 2019


Ideon Alfa1:4013
Scheelevägen 15B
223 63 Lund