| Abstract |
This study empirically examines the differences in inflation pass-through between the US and Japan. Using a structural model of sectoral inflation, we quantify the roles of production networks, price stickiness, and structural shocks in driving these variations. Our partial equilibrium framework captures sectoral inflation as a tractable form, enabling us to estimate the model and analytically explore the channels through which inflation pass-through operates. The model features that production interconnections generate inflation persistence across sectors, which is further enhanced by price stickiness in each sector. The full-information Bayesian estimation results show that impulse response functions to sectoral shocks are similar. Differences in inflation pass-through arise from two factors: the different sources of specific sectoral inflation, particularly in an energy-related sector, and contrasting price-setting behaviors. US firms tend to change prices in the same direction as import price shocks, leading to higher pass-throughs, whereas Japanese firms are inclined to set prices to absorb import price shocks.
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This paper documents the tradeoff between the frequency and severity of capital outflows in emerging economies. Countries with a high (low) frequency of capital outflows have experienced outflows of small (large) magnitude. We explain this pattern by focusing on the role of people's expectations regarding the occurrence of capital outflow events. In environments with a high frequency of capital outflows, people expect their future occurrence more strongly. This heightened expectation of losing access to international financial markets prompts collateral-constrained households to increase precautionary savings. These increased precautionary savings allow for higher levels of inflows during turbulent periods. We employ a rational expectation regime-switching approach to explicitly model agents' expectations regarding capital outflow events.
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