JEL Code D12 : Microeconomics→Household Behavior and Family Economics→Consumer Economics: Empirical Analysis D3 : Microeconomics→Distribution D43 : Microeconomics→Market Structure and Pricing→Oligopoly and Other Forms of Market Imperfection E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation F15 : International Economics→Trade→Economic Integration F4 : International Economics→Macroeconomic Aspects of International Trade and FinanceĪbstract The coronavirus (COVID-19) pandemic caused a deep recession globally, as well as in the euro area, accompanied by a steep decline in inflation rates in 2020. Price changes, however, are broadly aligned across borders within the same retailers. Retailers continue to differentiate prices along national borders, even within largely integrated economic regions. Between countries, multinational retail chains not only differentiate products by branding, but also charge different prices for identical products. Household-specific behaviour appears to dominate inflation differences within countries. Low-income households have experienced higher inflation in the last ten years, but the difference to richer households has been small and time varying. This paper documents large, idiosyncratic inflation differences between households in their everyday shopping. JEL Code G30 : Financial Economics→Corporate Finance and Governance→General G31 : Financial Economics→Corporate Finance and Governance→Capital Budgeting, Fixed Investment and Inventory Studies, Capacity O30 : Economic Development, Technological Change, and Growth→Technological Change, Research and Development, Intellectual Property Rights→General D62 : Microeconomics→Welfare Economics→ExternalitiesĪbstract Inflation affects the purchasing power of households. Our analysis reveals that carbon regulation does not necessarily reduce shareholder value if firms are sufficiently committed to reducing their carbon footprint. Under emissions trading systems, larger balances of carbon credits dampen firms’ efforts to reduce their carbon emissions. Our model shows that while carbon pricing curtails firms’ carbon emissions, polluting firms tilt their green investment mix towards more immediate yet short-lived options – such as solely reducing emissions (abatement) instead of investing in green innovation – as it becomes costlier to comply. We set out a unified approach to study the trade-offs carbon pricing poses for firms and how they should therefore best respond. JEL Code C32 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→Time-Series Models, Dynamic Quantile Regressions, Dynamic Treatment Effect Models, Diffusion Processes E32 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Business Fluctuations, Cycles E44 : Macroeconomics and Monetary Economics→Money and Interest Rates→Financial Markets and the Macroeconomy E47 : Macroeconomics and Monetary Economics→Money and Interest Rates→Forecasting and Simulation: Models and Applications E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary PolicyĪbstract Regulation to control carbon emissions challenges firms to develop optimal carbon management policies. However, these improvements are of a limited magnitude and very sensitive to the choice of the chosen financial variables. The results show that exploiting the information content of financial variables, which co-move strongly with the output cycle, can sometimes improve output gap estimates. The estimates are based both on small unobserved components models and a large unobserved components model that follows a production function approach. This paper presents a suite of estimates of output gaps incorporating financial variables. If financial variables are omitted from the estimations of the output gap, a common and unobserved indicator of the business cycle, important financial or external imbalances that may lead to future recessions may not be captured. Abstract The Global Financial Crisis established that policymakers should consider the stage of the financial cycle to better evaluate the cyclical position of the economy when designing monetary policy decisions.
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