In his talk, Ivan Petrella will discuss the paper he co-authored with Emiliano Santoro and Lasse de la Porte Simonsen.

Abstract

Using microdata underlying the UK consumer price index, we estimate a generalised Ss model of lumpy price adjustment. We report three novel results. First, changes in firms’ price-adjustment cost structure, as reflected in the adjustment hazard, are key to interpret time variation in price flexibility, intended as the capacity of nominal demand to stimulate price adjustment. Second, time-varying price flexibility maps into a marked non-linearity of the rate of inflation, with its half-life being twice as large in periods of relatively low flexibility, along with appearing remarkably close to the one observed in a linear setting. Third, a sizable fraction of professional forecasters’ inflation prediction error is explained by time variation in price flexibility, especially at medium-term forecast horizons. Overlooking these facts may severely bias our understanding of price setting and inflation dynamics

About the speaker

Ivan Petrella is an Associate Professor in Economic Modelling and Forecasting at Warwick Business School. His main research interests are in the areas of macroeconomics, applied econometrics and economic modeling. Prior to his appointment at WBS, Ivan was a Senior Economist at the Bank of England. He has also held visiting research positions at the European Central Bank, the Federal Reserve Bank in St Louis and the International Monetary Fund. Ivan has a PhD from the University of Cambridge and has published in a number of academic journals, including the American Economic Journal: Macroeconomics, Journal of Monetary Economics and the Review of Economics and Statistics.

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