Working Paper
The Relationship Between Inflation and the Distribution of Relative Price Changes
Hornstein, Andreas; Ruge-Murcia, Francisco J.; Wolman, Alexander L. (2024-12)
Monthly U.S. inflation from 1995 through 2019 is well explained by statistics summarizing the monthly distribution of relative price changes. We document this relationship and use it to evaluate the behavior of inflation during and after the COVID-19 pandemic. In earlier periods when inflation was not stable, the relationship between inflation and the distribution of relative price changes shifts, much like the Phillips curve. We use that shifting relationship to derive a measure of underlying inflation that complements existing measures used by central banks.
Working Paper , Paper 24-15

Discussion Paper
Limited-dependent rational expectations models with jumps
Ruge-Murcia, Francisco J.; Pesaran, M. Hashem (1996)
This paper develops a Limited-Dependent Rational Expectations (LD-RE) model where the bounds can be fixed for an extended period, but are subject to occasional jumps. In this case, the behavior of the endogenous variable is affected by the agent's expectations about both the occurrence and the size of the jump. The RE solution for the one-sided and two-sided band are derived and shown to encompass the cases of perfectly predictable and stochastically varying bounds examined by earlier literature. We demonstrate that the solution for the one-sided band exists and is unique when the coefficient ...
Discussion Paper / Institute for Empirical Macroeconomics , Paper 111

Briefing
A Model-Based Perspective on Inflation and the Distribution of Relative Price Changes
Wolman, Alexander L.; Ruge-Murcia, Francisco J. (2024-09-25)
A series of articles starting in 2022 has discussed the empirical relationship between inflation and the distribution of relative price changes: In the stable regime from 1995 until the pandemic era, the monthly inflation rate was closely related to a measure of asymmetry or skewness in the distribution of relative price changes. In this article, we describe related research that uses a dynamic macroeconomic model to study how inflation is jointly determined by monetary policy and "relative price shocks," as well as other shocks.1 We use that model to help us understand the factors that lead ...
Richmond Fed Economic Brief , Volume 24 , Issue 30