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Shopping behavior and the effect of monetary policy on inflation heterogeneity along the income distribution

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  • Ampudia, Miguel
  • Ehrmann, Michael
  • Strasser, Georg

Abstract

This paper studies the effect of monetary policy on inflation along the income distribution in the euro area and shows that monetary policy has differential effects. In response to monetary tightenings, high-income households engage in more intense product substitution and trade down in the product and store space relative to low-income households, such that their inflation responds relatively more. This channel stands in contrast to the effect arising from different consumption bundles, which imply that the inflation experienced by high-income households responds less to monetary policy. The paper also reveals substantial cross-country heterogeneity, with the product substitution channel being more pronounced in countries where price differences between possible substitutes are larger.

Suggested Citation

  • Ampudia, Miguel & Ehrmann, Michael & Strasser, Georg, 2024. "Shopping behavior and the effect of monetary policy on inflation heterogeneity along the income distribution," Journal of Monetary Economics, Elsevier, vol. 148(C).
    • Handle: RePEc:eee:moneco:v:148:y:2024:i:c:s0304393224000710
    DOI: 10.1016/j.jmoneco.2024.103618
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    Cited by:

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    2. Olena Kostyshyna & Maude Ouellet, 2024. "Household Food Inflation in Canada," Staff Working Papers 24-33, Bank of Canada.
    3. Cavallo, Alberto & Kryvtsov, Oleksiy, 2024. "Price discounts and cheapflation during the post-pandemic inflation surge," Journal of Monetary Economics, Elsevier, vol. 148(S).

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    More about this item

    Keywords

    Inflation; Distributional effects; Monetary policy; Shopping behavior; Substitution;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • D30 - Microeconomics - - Distribution - - - General

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