Productivity and inflation dynamics

2026

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AI-generated summary

1) This paper demonstrates that the inflationary impact of productivity is a priori ambiguous and depends on whether a shock affects levels or growth, the relative timing of supply and demand responses, sectoral incidence, and the monetary policy stance.
2)
- Analyzes a small open economy New Keynesian model with tradable and non-tradable sectors, nominal rigidities, and sector-specific capital accumulation.
- Distinguishes between temporary level shocks and persistent growth shocks, showing how anticipation effects can generate demand pressures that outpace supply.
- Evaluates how sectoral incidence (tradables vs. non-tradables) alters inflation dynamics via wage adjustments, relative prices, and exchange rate pass-through.
3) Tags: productivity, inflation dynamics, monetary policy, natural rate of interest, open economy macroeconomics

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