On the importance of sectoral and regional shocks for price setting

We use a novel disaggregate sectoral euro area data set with a regional breakdown to investigate price changes and suggest a new method to extract factors from over-lapping data blocks. This allows us to separately estim
We use a novel disaggregate sectoral euro area data set with a regional breakdown to investigate price changes and suggest a new method to extract factors from over-lapping data blocks. This allows us to separately estimate aggregate, sectoral, country-specific and regional components of price changes. We thereby provide an improved estimate of the sectoral factor in comparison with previous literature, which decomposes price changes into an aggregate and idiosyncratic component only, and interprets the latter as sectoral. We find that the sectoral component explains much less of the variation in sectoral regional inflation rates and exhibits much less volatility than previous findings for the US indicate. We further contribute to the literature on price setting by providing evidence that country- and region-specific factors play an important role in addition to the sector-specific factors, emphasising heterogeneity of inflation dynamics along different dimensions. We also conclude that sectoral price changes have a “geographical” dimension, that leads to new insights regarding the properties of sectoral price changes.
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Metadaten
Author:Guenter W. Beck, Kirstin Hubrich, Massimiliano Marcellino
URN:urn:nbn:de:hebis:30:3-268769
Parent Title (German):Working paper series / Institute for Monetary and Financial Stability ; 63
Series (Serial Number):Working Paper Series : Institute for Monetary and Financial Stability (63)
Document Type:Working Paper
Language:English
Year of Completion:2012
Year of first Publication:2012
Publishing Institution:Univ.-Bibliothek Frankfurt am Main
Release Date:2012/11/07
Tag:common factor models; disaggregated prices; euro area regional and sectoral inflation
Institutes: Institute for Monetary and Financial Stability (IMFS)
Center for Financial Studies (CFS)
Dewey Decimal Classification:330 Wirtschaft
JEL-Classification:C39 Other
D4 Market Structure and Pricing
E31 Price Level; Inflation; Deflation
F4 Macroeconomic Aspects of International Trade and Finance
Sammlungen:Universitätspublikationen
Licence (German):License Logo Veröffentlichungsvertrag für Publikationen

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