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Inflation and GDP Dynamics in Production Networks: A Sufficient Statistics Approach

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  • Hassan Afrouzi
  • Saroj Bhattarai

Abstract

We derive closed-form solutions and sufficient statistics for inflation and GDP dynamics in multi-sector New Keynesian economies with arbitrary input-output linkages. Analytically, we show how (1) production linkages amplify inflation and GDP persistence in response to monetary and sectoral shocks and (2) monetary policies that stabilize price indices or the GDP gap affect shock propagation. Quantitatively, sectors with large input-output adjusted price stickiness have disproportionate effects relative to their GDP shares: The three sectors with the highest contribution to the persistence of aggregate inflation have GDP shares of around zero but explain 16% of monetary non-neutrality.

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  • Hassan Afrouzi & Saroj Bhattarai, 2023. "Inflation and GDP Dynamics in Production Networks: A Sufficient Statistics Approach," NBER Working Papers 31218, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:31218
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    Cited by:

    1. Balleer, Almut & Noeller, Marvin, 2023. "Monetary policy in the presence of supply constraints: Evidence from German firm-level data," Ruhr Economic Papers 1060, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    2. Javier Bianchi & Alisdair McKay & Neil Mehrotra, 2024. "How Should Monetary Policy Respond to Housing Inflation?," Working Papers 808, Federal Reserve Bank of Minneapolis.
    3. Ṣebnem Kalemli-Özcan, 2023. "Comment on "Inflation Strikes Back: The Role of Import Competition and the Labor Market"," NBER Chapters, in: NBER Macroeconomics Annual 2023, volume 38, National Bureau of Economic Research, Inc.
    4. Mishel Ghassibe, 2024. "Endogenous Production Networks and Non-Linear Monetary Transmission," Working Papers 1449, Barcelona School of Economics.

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    More about this item

    JEL classification:

    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
    • 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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