Decomposing Supply‐ and Demand‐Driven Inflation

ADAM HALE SHAPIRO

doi:10.1111/jmcb.13209

journal article Oct 01, 2024

Decomposing Supply‐ and Demand‐Driven Inflation

ADAM HALE SHAPIRO

Journal of Money, Credit and Banking Vol. 58 No. 2 pp. 365-388 · Wiley

View at Publisher Save 10.1111/jmcb.13209

Abstract

Abstract
The extent to which either supply or demand factors drive inflation has important implications for economic policy. I propose a framework to decompose inflation into supply‐ and demand‐driven components. I generate two new data series that quantify the degree to which either demand or supply is driving inflation in a current month. The demand‐driven contribution tends to decline during recessions, while the supply‐driven contribution tends to follow food and energy prices. Monetary policy tightening acts to reduce the demand‐driven contribution of inflation. Oil‐supply shocks act to increase the supply‐driven contribution, but decrease the demand‐driven contribution of inflation.

Topics

No keywords indexed for this article. Browse by subject →

References

43

[1]

10.1093/ei/cbj027

[2]

10.1111/j.1538-4616.2011.00421.x

[3]

10.1353/eca.2022.a901276

[4]

10.1257/aer.20201229

[5]

10.1093/qje/qjaa022

[6]

Barnichon Regis andGeertMesters. (2022) “A Sufficient Statistics Approach for Macro Policy Evaluation.” Federal Reserve Bank of San Francisco. 10.24148/wp2022-15

[7]

10.1086/654443

[8]

Structural Interpretation of Vector Autoregressions with Incomplete Identification: Revisiting the Role of Oil Supply and Demand Shocks

Christiane Baumeister, James D. Hamilton

American Economic Review 10.1257/aer.20151569

[9]

Blanchard Olivier J. (2007)

[10]

10.7208/chicago/9780226043555.003.0005

[11]

Boissay Frederic FabriceCollard JordiGalí andCristinaManea. (2021) “Monetary Policy and Endogenous Financial Crises.” Technical Report National Bureau of Economic Research. 10.3386/w29602

[12]

Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy

Lawrence J. Christiano, Martin Eichenbaum, Charles L. Evans

Journal of Political Economy 10.1086/426038

[13]

Clemens Jeffery JoshuaGottlieb andAdamShapiro. (2016) “Medicare Payment Cuts Continue to Restrain Inflation.”FRBSF Economic Letter 15.

[14]

10.1086/689772

[15]

Clemens Jeffrey JoshuaGottlieb andAdamShapiro. (2014) “How Much Do Medicare Cuts Reduce Inflation?”FRBSF Economic Letter 28.

[16]

Oil Price Pass-through into Core Inflation

Cristina Conflitti, Matteo Luciani

The Energy Journal 10.5547/01956574.40.6.ccon

[17]

10.1162/rest_a_00539

[18]

Di Giovanni J. E.Kalemli‐Ozcan A.Silva andM. A.Yildirim. (2023) “Quantifying the Inflationary Impact of Fiscal Stimulus Under Supply Constraints ” Discussion Paper National Bureau of Economic Research. 10.2139/ssrn.4347222

[19]

10.3386/w26002

[20]

10.1016/j.jmoneco.2009.06.001

[21]

Faust Jon (1998)

[22]

10.1016/j.jmoneco.2023.03.003

[23]

10.1257/jel.49.4.938

[24]

10.1086/597328

[25]

10.1016/j.jmoneco.2022.09.003

[26]

Credit Spreads and Business Cycle Fluctuations

Simon Gilchrist, Egon Zakrajšek

American Economic Review 10.1257/aer.102.4.1692

[27]

10.1257/0002828053828446

[28]

10.1086/261140

[29]

Hamilton James D.(2008) “Oil and the Macroeconomy.”New Palgrave Dictionary of Economics 2. 10.1057/978-1-349-95121-5_2119-1

[30]

10.1162/rest_a_00706

[31]

10.1353/mcb.2002.0041

[32]

Estimation and Inference of Impulse Responses by Local Projections

ÒSCAR JORDÀ

American Economic Review 10.1257/0002828053828518

[33]

Jordà Òscar CelesteLiu FernandaNechio andFabiánRivera‐Reyes. (2022) “Why Is US Inflation Higher than in Other Countries?”FRBSF Economic Letter 7.

[34]

10.1016/j.eeh.2022.101448

[35]

10.1257/aer.20190964

[36]

Monetary policy surprises and interest rates: Evidence from the Fed funds futures market

Kenneth N Kuttner

Journal of Monetary Economics 10.1016/s0304-3932(01)00055-1

[37]

10.1016/s0304-3932(02)00114-9

[38]

10.1162/qjec.121.3.867

[39]

10.1016/j.jmoneco.2005.01.004

[40]

10.2307/2078071

[41]

10.1111/j.1468-0297.2008.02155.x

[42]

An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area

Frank Smets, Raf Wouters

Journal of the European Economic Association 10.1162/154247603770383415

[43]

What are the effects of monetary policy on output? Results from an agnostic identification procedure

Harald Uhlig

Journal of Monetary Economics 10.1016/j.jmoneco.2004.05.007

Metrics

15

Citations

43

References

Details

Published: Oct 01, 2024
Vol/Issue: 58(2)
Pages: 365-388
License: View

Authors

A

ADAM HALE SHAPIRO

Cite This Article

ADAM HALE SHAPIRO (2024). Decomposing Supply‐ and Demand‐Driven Inflation. Journal of Money, Credit and Banking, 58(2), 365-388. https://doi.org/10.1111/jmcb.13209

Decomposing Supply‐ and Demand‐Driven Inflation

You May Also Like