search query: @author Taylor, J.B. / total: 2
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| Author: | Taylor, J.B. |
| Title: | Low inflation, pass-through, and the pricing power of firms |
| Journal: | European Economic Review
2000 : JUN, VOL. 44:7, p. 1389-1408 |
| Index terms: | Exchange rates Monopoly Competition Pricing Inflation Models |
| Language: | eng |
| Abstract: | This paper puts forth the view that the decline in pass-through or pricing power is due to the low inflation environment that has recently been achieved in many countries. First, a microeconomic model of price setting is used to show that lower pass-through is caused by lower perceived persistence of cost changes. Evidence is then presented showing that inflation is positively correlated with persistence of inflation, suggesting that the low inflation itself has caused the low pass-through. An economy-wide model consistent with the micromodel is then presented to illustrate how such changes in pricing power affect output and inflation dynamics in favorable ways, but can disappear quickly if monetary policy and expectations change. |
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