Communication, credibility, and price stability: lessons learned from Japan
Over the past couple of decades, central banks have been taking steps to increase the transparency of their monetary policies through clearer communications with the public. While there are many differences between the economic challenges Japan has been struggling with in the past decade and those facing U.S. and European central bankers now, we can learn a great deal about combating deflation from Japan?s experiences.
The stability of dummy variable price measures obtained from hedonic regressions
Although the stability of coefficients from hedonic regressions has received much attention recently, that of dummy variable (DV) price indexes obtained from these regressions has not. In principle, one problem translates into the other only when some prices are not observed in the data. Numerically, however, DV measures obtained from a "typical" specification can be quite unstable even when the number of missing prices is small. To the extent that collinearity is an important source of the problem, functional forms that use (orthogonal) fixed effects to control for quality differences across ...
The housing drag on core inflation
Some analysts have raised the question of whether the unprecedented declines in house values, which have been the hallmark of the recent recession, might be artificially dampening core inflation readings. However, a close examination of recent inflation data shows that the weakness in housing costs is representative of a broad pattern of subdued price increases across most consumption goods and services and is not distorting the broad downward trend in core inflation measures.
Getting Smart About Phones : New Price Indexes and the Allocation of Spending Between Devices and Services Plans in Personal Consumption Expenditures
This paper addresses two measurement issues for mobile phones. First, we develop a new mobile phone price index using hedonic quality-adjusted prices for smartphones and a matched-model index for feature phones. Our index falls at an average annual rate of 17 percent during 2010-2018, close to the rate of decline in the price index used in the GDP Accounts. Given relatively flat average prices over this period, our index points to substantial quality improvement. Second, we propose a methodology to disentangle purchases of phones and wireless services when they are bundled together as part of ...
The Big Mac: a global-to-local look at pricing
The global, national, regional and local factors that shape price-setting behavior are complex, even for a relatively simple product that's neither easily tradable nor wholly nontradable.
How should central banks define price stability?
It is now generally accepted that the primary objective of central banks should be the maintenance of price stability. This paper considers the question of how central banks should define price stability. I address three specific questions. First, should central banks target broad or narrow measures of inflation? Second, should central banks target headline or core measure of inflation? And third, should central banks define price stability as prevailing at some positive measured rate of inflation?
CONDI: a cost-of-nominal-distortions index
We construct a price index with weights on the prices of different PCE goods chosen to minimize the welfare costs of nominal distortions: a cost-of-nominal-distortions index (CONDI). We compute these weights in a multisector New Keynesian model with time-dependent price setting, calibrated using U.S. data on the dispersion of price stickiness and labor shares across sectors. We find that the CONDI weights mostly depend on price stickiness and are less affected by the dispersion in labor shares. Moreover, CONDI stabilization leads to negligible welfare losses compared to the optimal policy and ...
Estimating the border effect: some new evidence
To what extent do national borders and national currencies impose costs that segment markets across countries? To answer this question the authors use a dataset with product-level retail prices and wholesale costs for a large grocery chain with stores in the United States and Canada. They develop a model of pricing by location and employ a regression discontinuity approach to estimate and interpret the border effect. They report three main facts: One, the median absolute retail price and wholesale cost discontinuities between adjacent stores on either side of the U.S.-Canadian border are as ...
Introductory remarks to the Price Measurement for Monetary Policy Conference
Remarks given to a conference organized by the Federal Reserve Banks of Dallas and Cleveland,> Dallas, Texas, May 24, 2007 ; "One of our main criticisms here at the Dallas Fed of much of the core inflation literature is that it lacks theoretical coherence. It reminds me of the time-honored saying that an economist is someone who sees something work in practice and then wonders if it can work in theory."
Inflation measurement and price volatility
Remarks before the Charlotte Economics Club, Charlotte, N.C., October 4, 2007. ; "Those of us responsible for crafting U.S. monetary policy cannot afford to be distracted by the flux of short-term price changes that are destined to be unwound. Our eye should be focused on underlying inflationary pressures, some of which may indeed be coming from food and energy markets. Routinely excluding food and oil price movements from our inflation gauges may have made sense in the 1970s, the 1980s and even the 1990s--but not now, nor in the next few years."