Hostname: page-component-76d6cb85b7-rxvq6 Total loading time: 0 Render date: 2026-07-17T02:33:04.176Z Has data issue: false hasContentIssue false
  • English
  • Français

Sectoral inflation under fragmentation of information

Published online by Cambridge University Press:  15 January 2025

Tatsushi Okuda  and
Tomohiro Tsuruga Open the ORCID record for Tomohiro Tsuruga [Opens in a new window]
Tatsushi Okuda
Affiliation:
International Monetary Fund, Washington, DC, USA
Tomohiro Tsuruga*
Affiliation:
International Monetary Fund, Washington, DC, USA
*
Corresponding author: Tomohiro Tsuruga; Email: ttsuruga@imf.org
Get access Rights & Permissions [Opens in a new window]

Abstract

We examine the role of fragmentation of information in explaining the dynamics of sectoral inflation. Using the quarterly survey of firms’ prices and costs in Japan, we first document two empirical facts: the sensitivity of sectoral inflation to changes in sectoral costs monotonically decreases with the dispersion of changes in (i) current costs and (ii) those in the past. A direct application of the dispersed information model can reconcile the fact (i) but fails to reconcile the fact (ii). We then extend the standard imperfect information model to construct a dynamic general equilibrium model that features fragmentation of information, wherein a finite number of groups of firms exist and firms in the same group share common idiosyncratic noises in their signals. Using this model, we find that the degree of fragmentation of information plays a crucial role in explaining these empirical facts.

Keywords

inflation dynamicsimperfect informationsemi-public signalsE31D80L11

Information

Type
Articles
Information
Macroeconomic Dynamics , Volume 29 , 2025 , e69
Copyright
© International Monetary Fund, 2025. Published by Cambridge University Press

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Article purchase

Temporarily unavailable

References

Adam, K. (2007) Optimal monetary policy with imperfect common knowledge. Journal of Monetary Economics 54(2), 267–301.CrossRefGoogle Scholar
Afrouzi, H. (2023). Strategic inattention, inflation dynamics, and the non-neutrality of money, National Bureau of Economic Research, Inc. NBER Working Papers 31796. https://econpapers.repec.org/paper/nbrnberwo/31796.htm.Google Scholar
Albagli, E., Grigoli, F. and Luttini, E.. (2022) Inflation Expectations and the Supply Chain, IMF Working Papers 2022/161. Vol. 2022(161). p. 43. International Monetary Fund. https://doi.org/10.5089/9798400214752.001; https://www.imf.org/en/Publications/WP/Issues/2022/08/08/Inflation-Expectations-and-the-Supply-Chain-521686.Google Scholar
Amador, M. and Weill, P.-O.. (2010) Learning from prices: public communication and welfare. Journal of Political Economy 118(5), 866–907.CrossRefGoogle Scholar
Amador, M. and Weill, P.-O.. (2012) Learning from private and public observations of others’ actions. Journal of Economic Theory 147(3), 910–940.CrossRefGoogle Scholar
Andrade, P., Coibion, O., Gautier, E. and Gorodnichenko, Y.. (2022) No firm is an island? How industry conditions shape firms’ expectations. Journal of Monetary Economics 125, 40–56.CrossRefGoogle Scholar
Angeletos, G.-M. and La’O, J.. (2009) Incomplete information, higher-order beliefs and price inertia. Journal of Monetary Economics 56(S), S19–S37.CrossRefGoogle Scholar
Aoki, K., Ichiue, H. and Tatsushi, O.. (2019) Consumers’ Price Beliefs, Central Bank Communication, and Inflation Dynamics, Bank of Japan Working Paper Series 19-E-14, Bank of Japan.Google Scholar
Atkeson, A. and Ohanian, L. E.. (2001) Are phillips curves useful for forecasting inflation? Quarterly Review, Federal Reserve Bank of Minneapolis 25(Win), 2–11.Google Scholar
Bils, M. and Klenow, P. J.. (2004) Some evidence on the importance of sticky prices. Journal of Political Economy 112(5), 947–985.CrossRefGoogle Scholar
Boivin, J., Giannoni, M. and Mihov, I.. (2009) Sticky prices and monetary policy: Evidence from disaggregated US data. American Economic Review 99(1), 350–384.CrossRefGoogle Scholar
Bullard, J. B. (2018) The Case of the Disappearing Phillips Curve: A presentation at the 2018 ECB Forum on Central Banking Macroeconomics of Price- And Wage-Setting, Sintra, Portugal. In: Speech 314, pp. 1–18. Federal Reserve Bank of St. Louis. https://www.stlouisfed.org/-/media/project/frbstl/stlouisfed/files/pdfs/bullard/remarks/2018/bullard_ecb_sintra_june_19_2018.pdf.Google Scholar
Dupor, B., Kitamura, T. and Tsuruga, T.. (2010) Integrating sticky prices and sticky information. Review of Economics and Statistics 92(3), 657–669.CrossRefGoogle Scholar
Fukunaga, I. (2007) Imperfect common knowledge, staggered price setting, and the effects of monetary policy. Journal of Money, Credit and Banking 39(7), 1711–1739.CrossRefGoogle Scholar
Gagnon, J. E. and Collins, C. G.. (2019). Low inflation bends the phillips curve, Peterson Institute for International Economics (PIIE). Working Paper Series 19-6. https://www.piie.com/publications/working-papers/low-inflation-bends-phillips-curve.Google Scholar
Hazell, J., Herreno, J., Nakamura, E. and Steinsson, Jón. (2022) The slope of the Phillips Curve: Evidence from U.S states. The Quarterly Journal of Economics 137(3), 1299–1344.CrossRefGoogle Scholar
Hellwig, C. and Venkateswaran, V.. (2009) Setting the right prices for the wrong reasons. Journal of Monetary Economics 56(S), S57–S77.CrossRefGoogle Scholar
Kaihatsu, S. and Nakajima, J.. (2018) Has trend inflation shifted?: An empirical analysis with an equally-spaced regime-switching model. Economic Analysis and Policy 59(C), 69–83.CrossRefGoogle Scholar
Kaihatsu, S., Katagiri, M. and Shiraki, N.. (2023) Phillips correlation and price-change distributions under declining trend inflation. Journal of Money, Credit and Banking 55(5), 1271–1305.CrossRefGoogle Scholar
Kato, R. and Okuda, T.. (2017). Market concentration and sectoral inflation under imperfect common knowledge, Institute for Monetary and Economic Studies, Bank of Japan. IMES Discussion Paper Series 17-E-11. https://www.imes.boj.or.jp/research/papers/english/17-E-11.pdf.Google Scholar
Kato, R., Okuda, T. and Tsuruga, T.. (2021) Sectoral inflation persistence, market concentration, and imperfect common knowledge. Journal of Economic Behavior Organization 192(C), 500–517.CrossRefGoogle Scholar
Kishaba, Y. and Okuda, T.. (2023) The Slope of the Phillips Curve for Service Prices in Japan: Regional Panel Data Approach, Bank of Japan Working Paper Series 23-E-8, Bank of Japan.Google Scholar
Klenow, P. J. and Kryvtsov, O.. (2008) State-dependent or time-dependent pricing: does it matter for recent U.S inflation. Quarterly Journal of Economics 123(3), 863–904.CrossRefGoogle Scholar
Lucas, R. E. (1972) Expectations and the neutrality of money. Journal of Economic Theory 4(2), 103–124.CrossRefGoogle Scholar
Lucas, R. (1973) Some international evidence on output-inflation tradeoffs. American Economic Review 63(3), 326–334.Google Scholar
Maćkowiak, B., Moench, E., Wiederholt, M.. (2009) Sectoral price data and models of price setting. Journal of Monetary Economics 56(S), S78–S99.CrossRefGoogle Scholar
Mackowiak, B. and Wiederholt, M.. (2009) Optimal sticky prices under rational inattention. American Economic Review 99(3), 769–803.CrossRefGoogle Scholar
Mankiw, N. G. and Reis, R.. (2002) Sticky information versus sticky prices: a proposal to replace the new keynesian phillips curve. The Quarterly Journal of Economics 117(4), 1295–1328.CrossRefGoogle Scholar
Mavroeidis, S., Plagborg-Møller, M. and Stock, J. H.. (2014) Empirical evidence on inflation expectations in the new keynesian phillips curve. Journal of Economic Literature 52(1), 124–188.CrossRefGoogle Scholar
Melosi, L. (2014) Estimating models with dispersed information. American Economic Journal: Macroeconomics 6(1), 1–31.Google Scholar
Melosi, L. (2017) Signalling effects of monetary policy. The Review of Economic Studies 84(2), 853–884.Google Scholar
Morris, S. and Shin, H. S.. (2007) Optimal communication. Journal of the European Economic Association 5(2-3), 594–602.CrossRefGoogle Scholar
Mourougane, A. and Ibaragi, H.. (2004). Is there a change in the trade-off between output and inflation at low or stable inflation rates?: some evidence in the case of Japan, OECD Publishing. OECD Economics Department Working Papers 379. OECD Publishing, Paris. https://doi.org/10.1787/685810855735; https://www.oecd-ilibrary.org/economics/is-there-a-change-in-the-trade-off-between-output-and-inflation-at-low-or-stable-inflation-rates_685810855735.Google Scholar
Nakamura, E. and Steinsson, Jón. (2008) Five facts about prices: A reevaluation of menu cost models. Quarterly Journal of Economics 123(4), 1415–1464.CrossRefGoogle Scholar
Nimark, K. (2008) Dynamic pricing and imperfect common knowledge. Journal of Monetary Economics 55(2), 365–382.CrossRefGoogle Scholar
Nishizaki, K., Sekine, T. and Ueno, Y.. (2014) Chronic deflation in Japan. Asian Economic Policy Review 9(1), 20–39.CrossRefGoogle Scholar
Okuda, T., Tsuruga, T. and Zanetti, F.. (2019) Imperfect Information, Shock Heterogeneity, and Inflation Dynamics, In: Discussion Papers 1918, Centre for Macroeconomics (CFM), pp. 1–57. https://www.lse.ac.uk/CFM/assets/pdf/CFM-Discussion-Papers-2019/CFMDP2019-18-Paper.pdf.Google Scholar
Okuda, T., Tsuruga, T. and Zanetti, F.. (2021) Imperfect Information, Heterogeneous Demand Shocks, and Inflation Dynamics. CAMA Working Papers 2021-29, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University. https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2021-03/29_2021_okuda_tsuruga_zanetti.pdf.Google Scholar
Roberts, J. (2006) Monetary policy and inflation dynamics. International Journal of Central Banking 2(3), 193–230. https://www.ijcb.org/journal/ijcb06q3a6.pdf.Google Scholar
Veirman, E. D. (2007) Which Nonlinearity in the Phillips Curve? The Absence of Accelerating Deflation in Japan. In: Economics Working Paper Archive, vol. 536, The Johns Hopkins University, Department of Economics, pp. 1–49. http://www.econ2.jhu.edu/REPEC/papers/wp536deveirman.pdf.Google Scholar
Woodford, M. (2003) Imperfect Common Knowledge and the Effects of Monetary Policy. In: Woodford, M. (eds.), Knowledge, Information, and Expectations in Modern Macroeconomics: In Honour of Edmund S. Phelps, pp. 25–58. Princeton: Princeton University Press. https://press.princeton.edu/books/paperback/9780691094854/knowledge-information-and-expectations-in-modern-macroeconomics?srsltid=AfmBOooJ2EfR2B0nt_LCnMFFcPQd37dtckAvzm6aR2egSRzAQGA2K1Z5.Google Scholar
Supplementary material: File

Okuda and Tsuruga supplementary material

Okuda and Tsuruga supplementary material
Download Okuda and Tsuruga supplementary material(File)
File 1.1 MB