Journal
QUARTERLY JOURNAL OF ECONOMICS
Volume 134, Issue 2, Pages 715-783Publisher
OXFORD UNIV PRESS INC
DOI: 10.1093/qje/qjy031
Keywords
-
Categories
Funding
- HBS doctoral office
- Kauffman Foundation
- Stanford Institute for Economic Policy Research
- Washington Center for Equitable Growth
- ESRC [ES/M010341/1] Funding Source: UKRI
Ask authors/readers for more resources
This article examines how product innovations led to inflation inequality in the United States from 2004 to 2015. Using scanner data from the retail sector, I find that annual inflation for retail products was 0.661 (std. err. 0.0535) percentage points higher for the bottom income quintile relative to the top income quintile. When including changes in product variety over time, this difference increases to 0.8846 (std. err. 0.0739) percentage points a year. In CEX-CPI data covering the full consumption basket, the annual inflation difference is 0.368 (std. err. 0.0502) percentage points. I investigate the following hypothesis: (i) the relative demand for products consumed by high-income households increased because of growth and rising inequality; (ii) in response, firms introduced more new products catering to such households; (iii) as a result, the prices of continuing products in these market segments fell due to increased competitive pressure. Using a shift-share research design, I find causal evidence that increasing relative demand leads to increasing product variety and lower inflation for continuing products. A calibration indicates that the hypothesized channel accounts for a large fraction (over 50%) of observed inflation inequality.
Authors
I am an author on this paper
Click your name to claim this paper and add it to your profile.
Reviews
Recommended
No Data Available