Mishel Ghassibe - Intertemporal Pass-Through (iPT) Seminar - Macro Finance

Seminar
  • Date and time: Wednesday 9 October 2024, 1pm to 2pm
  • Location: ARC/010, Alcuin Research Resource Centre, Campus West, University of York (Map)
  • Audience: Open to staff, students
  • Admission: Free admission, booking not required

Event details

Speaker: Mishel Ghassibe (CREi/Barcelona)

Abstract: We study intertemporal pass-through (iPT): the sensitivity of firms’ prices to changes in their expected future marginal costs. Our empirical iPT estimates are obtained by combining a confidential survey of UK firms with a quasi-natural experiment: the 2019 announcement of future tariff schedules in the event of a No-Deal Brexit. In line with conventional pricing models, we find that firms with the lowest average frequency of price adjustment have the largest iPT, passing on over a third of expected future cost changes to current prices. We also find that firms’ iPT rises whenever they expect future shocks to arrive earlier. Embedding our microeconomic iPT estimates into a multi-sector general equilibrium model with heterogeneous price stickiness, we formally show that the sensitivity of aggregate price indices to changes to future costs is convex in micro frequencies of price non-adjustment. As a result, the heterogeneity in firm-level iPTs driven by differential adjustment frequencies amplifies the degree of forward-lookingness of macroeconomic aggregates. This highlights the importance of accounting for microeconomic heterogeneity in price setting when designing macroeconomic policies that affect agents’ expectations, such as forward guidance or pre-announced fiscal policy.

Host: Tho Pham (York)