Inflation Dynamics During the Financial Crisis

Gilchrist, Simon; Schoenle, Raphael; Sim, Jae; Zakrajšek, Egon

doi:10.3386/w22827

Cited by 72 publications

(81 citation statements)

References 28 publications

(36 reference statements)

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“…Allowing current demand to be a direct function of past performance, we show that this class of models can be extended to capture firm pricing, product quality, and sales dynamics.The key departure of our model is that the firm's residual demand is a function of its past market share in a given destination country. In this sense, our work is also broadly related to papers that study the impact of external habits on economic behavior as in Ravn et al (2006), Ravina (2007, and Gilchrist et al (2017).Our model likewise shares intuition with Foster et al (2016) even though its structure is substantially different. In both models, new entrants in a given market account for the longrun impact that current pricing decisions will have on future sales and profits through demand accumulation.…”

supporting

confidence: 72%

“…The reader might be concerned that preferences are directly a function of past market share. Our approach directly follows the literature that models demand as a function of external signals as in Ravn et al (2006), Ravina (2007), and Gilchrist et al (2017). In each of these papers, past, external consumption influences current consumer preferences in a fashion similar to that specified in our utility function.…”

Section: A Model Of Export Price and Quality Dynamicsmentioning

confidence: 99%

“…The mechanism in our model can be interpreted as a reduced-form representation of the more complex importer-exporter matching process which we do not observe in our data. 21 Ravina (2007) provides empirical evidence of past external demand influencing current consumers' choices, whereas Ravn et al (2006) and Gilchrist et al (2017) are primarily interested in explaining the movements of markups or inflation differences in past market share summarize differences in demand across firm brands within a cohort of firms and over time. 22 This approach has two key advantages.…”

Section: A Model Of Export Price and Quality Dynamicsmentioning

confidence: 99%

“…The key departure of our model is that the firm's residual demand is a function of its past market share in a given destination country. In this sense, our work is also broadly related to papers that study the impact of external habits on economic behavior as in Ravn et al (2006), Ravina (2007, and Gilchrist et al (2017).…”

mentioning

confidence: 93%

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Price, Product Quality, and Exporter Dynamics: Evidence From China

Rodrigue

Tan

2019

Int Economic Review

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This article develops a model of heterogeneous firms that endogenously choose prices and product quality to build demand in export markets. New exporters optimally charge relatively low prices and produce low‐quality goods upon entry. Product quality, prices, and sales increase as demand grows. We structurally estimate model parameters using Chinese customs data. The estimated incentive to build future demand reduces average export prices by 0.7% and increases export sales by 4% upon entry. Endogenous demand accumulation causes estimated export prices, product quality, and sales to grow by 2.2%, 12%, and 79%, respectively, over the following five years.

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supporting

confidence: 72%

Section: A Model Of Export Price and Quality Dynamicsmentioning

confidence: 99%

Section: A Model Of Export Price and Quality Dynamicsmentioning

confidence: 99%

mentioning

confidence: 93%

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Price, Product Quality, and Exporter Dynamics: Evidence From China

Rodrigue

Tan

2019

Int Economic Review

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“… Gilchrist et al (2017). provide evidence that firms with "weak" balance sheets increased their price during the 2008 crisis, while firms with "strong" balance sheets decreased their prices as expected.…”

supporting

confidence: 54%

Financial Stress Regimes and the Macroeconomy

Galvão¹,

Owyang²

2018

J of Money Credit Banking

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Some financial stress events lead to macroeconomic downturns, while others appear to be isolated to financial markets. We identify financial stress regimes using a model that explicitly links financial variables to macro‐economic outcomes. The stress regimes are identified using an unbalanced panel of financial variables with an embedded method for variable selection. Our identified stress regimes are associated with corporate credit tightening and with NBER recessions. An exogenous deterioration in our financial conditions index has strong negative effects in economic activity, and negative amplification effects on inflation in the stress regime. These results are obtained with a novel factor‐augmented vector autoregressive model with smooth‐transition regimes (FASTVAR).

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Time Variation in Macro‐Financial Linkages

Prieto

Eickmeier

Marcellino

2016

J of Applied Econometrics

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Reproduction permitted only if source is stated.ISBN 978-3-86558-907-1 (Printversion) Non-technical summary None of the macroeconomic models commonly used in academic research and in policy institutions was able to predict the strong economic downturn following the Global Financial Crisis. Two main shortcomings of the standard macro modeling approach have been identi…ed: the lack of …nancial variables in these models and the lack of a time-varying relationship between …nancial and macroeconomic variables.We try to overcome these shortcomings and incorporate a few key …nancial indicators in an otherwise standard Bayesian macroeconomic vector autoregressive model (VAR) for the US and estimate that model over the period 1958Q1-2012Q2. The VAR includes GDP growth, GDP de ‡ator in ‡ation, house price in ‡ation, the corporate bond spread, stock price in ‡ation and the Federal Funds rate. In order to account for possible time variation in the relationship between …nancial indicators and the macroeconomy, we allow for continuous changes in the autoregressive coe¢ cients, contemporaneous relations and stochastic volatilities. This re ‡ects the fact that time variation in the shock transmission can occur because of permanent structural changes such as …nancial globalization, regulatory changes or changes in the conduct of monetary policy or because of temporary changes due to agency problems between lenders and borrowers which are more pronounced in …nancial crisis periods than in normal periods.Based on our estimated time-varying parameter VAR, we look at the sum of the contributions of shocks to each individual …nancial indicator to GDP growth as a measure of the overall importance of the …nancial sector as origin of shocks for the macroeconomy. We then shed light on the underlying sources of time variation. We assess the contribution of unexpected changes in individual …nancial variables to GDP growth over time and look at possible changes in the volatility of …nancial shocks and in their impact on GDP growth. Finally, we compare …nancial shock contributions estimated from the model with those estimated from a constant parameter VAR and a VAR in which we replace the …nancial variables with the National Financial Conditions Index published by the Federal Reserve Bank of Chicago, a latent factor extracted from a very large number of …nancial variables.Our main …ndings are: (i) The contribution of …nancial shocks to the forecast error variance of GDP growth ‡uctuates considerably over time, from about 20 percent in normal times to roughly 50 percent over the global …nancial crisis period. (ii) The Great Recession and the subsequent weak recovery can largely be traced back to negative housing shocks. (iii) Housing shocks have become more important for the real economy since the early-2000s, and negative housing shocks are more important than positive ones. Die wichtigsten Erkenntnisse lauten: a) Der Beitrag …nanzieller Schocks zur Prognosefehlervarianz des BIP-Wachstums schwankt im Zeitverlauf erheblich und reicht von etw...

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Inflation Dynamics During the Financial Crisis

Cited by 72 publications

References 28 publications

Price, Product Quality, and Exporter Dynamics: Evidence From China

Price, Product Quality, and Exporter Dynamics: Evidence From China

Financial Stress Regimes and the Macroeconomy

Time Variation in Macro‐Financial Linkages

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