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Autor:innen: 
Erscheinungsjahr: 
2025
Schriftenreihe/Nr.: 
CESifo Working Paper No. 12306
Verlag: 
Munich Society for the Promotion of Economic Research - CESifo GmbH, Munich
Zusammenfassung: 
I identify the natural rate of inflation: the threshold where signal-to-noise crosses unity. Extending Lucas (1972), I show that when inflation falls below sectoral volatility, firms cannot distinguish aggregate from idiosyncratic shocks. Sticky-price firms rationally filter out competitor price movements, creating endogenous stability. When inflation exceeds the natural rate, filtering ceases, coordination increases, and inflation becomes self-reinforcing. Using six million UK micro-price observations, I estimatethis threshold at 1.9%. Crossing it triggers a regime shift: price dispersion falls 10%, inflation persistence jumps from near-zero to 0.44, and monetary policy loses traction. These findings validate 2% targets as the limit of self-correction.
Schlagwörter: 
inflation targeting
strategic pricing
behavioural thresholds
sectoral volatility
monetary policy
price complementarity
JEL: 
E31
E52
E58
D21
L13
Dokumentart: 
Working Paper
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