This paper analyzes the role of changes in the structure of production networks on the flattening of the Phillips curve over the last decades. I build a multi-sector model with production networks, and heterogeneity in input-output linkages and in degree of nominal rigidities. In the production network model, inflation sensitivity to the output gap depends on the topology of the network of the economy. In particular, I show that two characteristics of the network matter for inflation dynamics: (i) the network multiplier and (ii) output shares. Analyzing the U.S. Input-Output structure from 1963 to 2017, I document structural changes in the production network. Calibrating the model to these sectoral changes can account for a decrease in the slope of up to 15 percent. Decomposing the aggregate effect shows that the flattening is primarily due to an increase in the centrality of sectors with more rigid prices that is incompletely reflected by compositional changes in value-added.
Network Effects of Oil Price Shocks
In this paper, I estimate the pass-through of oil price shocks into consumer prices. Using a structural dynamic factor model (SDFM), I exploit the informational content of disaggregate inflation series to decompose the overall effect an unexpected change in the oil price might have on headline and core inflation. In particular, I assess the size of the pass-through from energy to non-energy components, the spillover effect. The results suggest that oil price shocks have positive and persistent effects on core inflation and that sectoral spillovers contribute substantially to this observation. I further illustrate the importance of this result for the discussion of missing disinflation during the Great Recession.
Work in progress:
How large are Strategic Complementarities? Evidence from VAT Changes in the U.K.
On the Sources of Heterogenous Frequency of Price Adjustment (with Donghai Zhang)