Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/309163 
Authors: 
Year of Publication: 
2024
Series/Report no.: 
Working Papers No. 24-12
Publisher: 
Federal Reserve Bank of Boston, Boston, MA
Abstract: 
This paper studies inflation in small open economies with production networks. I show that production networks alter the elasticity of the consumer price index (CPI) to changes in sectoral technology, factor prices, and import prices. Sectors can import and export directly but also indirectly through domestic intermediate inputs. Indirect exporting dampens the inflationary pressure from domestic forces, while indirect importing increases the inflation sensitivity to import price changes. Computing these CPI elasticities requires knowledge of the production network structure because these do not coincide with typical sufficient statistics used in the literature such as sectoral sales-to-GDP ratios, factor shares, or imported consumption shares. Using input-output tables, I provide empirical evidence that adjusting CPI elasticities for indirect exports and imports matters quantitatively for small open economies. I use the model to illustrate the importance of production networks during the COVID-19-related inflation in Chile and the United Kingdom.
Subjects: 
Inflation
small open economies
networks
input-output tables
JEL: 
E31
F41
D57
C67
F14
L16
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.