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Input-output structure and the general equilibrium dynamics of inflation and output

Author

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  • Kevin Huang
  • Z. Liu

Abstract

Recent empirical studies reveal that monetary shocks cause persistent fluctuations in inflation and aggregate output. In the literature, few mechanisms have been identified to generate such persistence. In this paper, we propose a new mechanism that does so. Our model features an input-output structure and staggered price contracts. Working through the input-output relations and the timing of firms’ pricing decisions, the model generates smaller fluctuations in marginal cost facing firms at later stages than at earlier stages and hence persistent responses of both the inflation rate and aggregate output following a monetary stock. The persistence is larger, the greater the number of production stages. With a sufficient number of stages, the real persistence is arbitrarily large.

Suggested Citation

  • Kevin Huang & Z. Liu, "undated". "Input-output structure and the general equilibrium dynamics of inflation and output," Working Papers 2000-10, Utah State University, Department of Economics.
    • Handle: RePEc:usu:wpaper:2000-10
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    File URL: https://repec.bus.usu.edu/RePEc/usu/pdf/ERI2000-10.pdf
    File Function: First version, 2000
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    Cited by:

    1. Muellbauer, John, 2018. "The Future of Macroeconomics," INET Oxford Working Papers 2018-10, Institute for New Economic Thinking at the Oxford Martin School, University of Oxford.

    More about this item

    Keywords

    Input-output structure; staggered price contracts; persistence; monetary policy;
    All these keywords.

    JEL classification:

    • 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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