WIFO Working Papers

Discussion papers by WIFO staff, consultants and guests – As of 2006 available online only – Free download

WIFO Working Papers are not peer reviewed and are not necessarily based on a coordinated position of WIFO. The authors were informed about the Guidelines for Good Scientific Practice of the Austrian Agency for Research Integrity (ÖAWI), in particular with regard to the documentation of all elements necessary for the replicability of the results.

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Propagation of Price Shocks to CPI Inflation: The Role of Cross-demand Dependencies
WIFO Working Papers, 2023, (663), 51 pages
Online since: 02.08.2023 0:00
Cross-demand creates links between goods which cause demand-driven cross-price dependencies. We construct a theoretical model to analyze their role in propagating microeconomic price shocks to the CPI inflation rate and examine their empirical relevance using spatial econometric techniques. The results highlight the importance of complementarity and substitution properties between goods in exacerbating or mitigating price shocks. This contrasts with the propagation through the production network. Most importantly, demand-driven cross-price dependencies determine the impact of producer prices on the CPI inflation rate.
JEL-Codes:C11, C53, D85, E31
Keywords:Inflation, Consumer behaviour, Cross price dependencies, Network analysis
Research group:Macroeconomics and Public Finance – Regional Economics and Spatial Analysis