Seminar

Cancelled - The Missing Inflation Puzzle: The Role of the Wage-Price Pass-Through

Aysegul Sahin (University of Texas)

November 16, 2021, 16:00–17:00

BDF Paris

Séminaire Banque de France

Abstract

Price inflation in the U.S. has been sluggish and slow to pick up in the last two decades. We show that this missing inflation can be traced to a growing disconnect between unemployment and core goods inflation. We exploit rich industry-level data to show that weakening pass-through from wages to prices in the goods-producing sector is an important source of the slow inflation pick-up in the last two decades. We set up a theoretical framework where markups and pass-through are a function of firms' market shares and show that increased import competition and rising market concentration reduce pass-through from wages to prices. We then use industry-level data and find strong support for these two channels consistent with the implications of our model.