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Macroeconomic effects of shocks to import and services sector prices

Author

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  • Dimitris Papageorgiou

    (Bank of Greece)

Abstract

This paper investigates the macroeconomic implications of inflationary shocks that originate from the import and services sectors. The set-up is a medium-scale Dynamic Stochastic General Equilibrium (DSGE) model calibrated for the Greek economy. The results suggest that a temporary increase in import price inflation adversely affects economic activity and drives up domestic inflation. The largest output losses occur in the medium term, since in the short term the adverse effects are dampened by the presence of price rigidities and an import substitution effect that induces expenditure to switch towards domestically produced goods. Additionally, the findings suggest that a temporary increase in the price of the services sector exerts strong inflationary pressures and negatively affects economic activity. Finally, the results show that inflation persistence matters for the effects on the macroeconomy. The more persistent inflation is in imports and the services sector, the larger the output losses

Suggested Citation

  • Dimitris Papageorgiou, 2021. "Macroeconomic effects of shocks to import and services sector prices," Economic Bulletin, Bank of Greece, issue 54, pages 7-21, December.
    • Handle: RePEc:bog:econbl:y:2021:i:54:p:7-21
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    File URL: https://www.bankofgreece.gr/Publications/oikodelt202112.pdf
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    References listed on IDEAS

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    7. Roberto A. De Santis & Fédéric Holm‐Hadulla, 2020. "Flow Effects of Central Bank Asset Purchases on Sovereign Bond Prices: Evidence from a Natural Experiment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(6), pages 1467-1491, September.
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    Cited by:

    1. Sofia Anyfantaki & Yannis Caloghirou & Konstantinos Dellis & Aikaterini Karadimitropoulou & Filippos Petroulakis, 2022. "Skills, management practices and technology adoption in Greek manufacturing firms," Economic Bulletin, Bank of Greece, issue 55, pages 7-42, July.
    2. Nikos Ventouris & Georgios Palaiodimos, 2022. "Proposals for the reform of EU fiscal rules," Economic Bulletin, Bank of Greece, issue 55, pages 67-81, July.
    3. Christos Catiforis, 2022. "Post-pandemic inflation: Phillips Curve, trends, drivers and lessons," Economic Bulletin, Bank of Greece, issue 55, pages 43-65, July.
    4. Nikolaos Vettas & Alexandros Louka & Konstantinos Peppas & Yakinthi Pountouraki & Michael Vasileiadis, 2022. "Trends in total factor productivity in Greece and its determinants during the period 2005-2019," Economic Bulletin, Bank of Greece, issue 56, pages 7-43, December.
    5. Sofia Anyfantaki & Petros Migiakis & Katerina Paisiou, 2022. "Green finance in Europe: actors and challenges," Economic Bulletin, Bank of Greece, issue 55, pages 83-105, July.

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    More about this item

    Keywords

    import prices; services sector prices; consumer prices; inflation; Greece;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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