Charlotte Paulie: Department of Economics, Postal: Department of Economics, Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden
Abstract: Using detailed Swedish micro data on prices and costs, this paper documents a decrease in the dispersion of changes in prices and markups following the introduction of an oﬃcial inﬂation target of 2 percent. Using a structural model to decompose the change in the price-change distribution by potential explanatory factors, about 63 percent of the decrease in the price-change dispersion can be attributed to a decrease in the cross-sectional variance of inﬂation expectations. The lower dispersion of inﬂation expectations results in a lower markup dispersion and a welfare gain equivalent to a 0.79 percent increase in consumption.
57 pages, January 7, 2019
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