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2017-03-31 SF Fed - discussion Kaplan Schulhofer-Wohl 1Hobijn -
Bart Hobijn
Discussion of
Inflation at theHousehold Level
Greg Kaplan and Sam Schulhofer-Wohl
2017-03-31 SF Fed - discussion Kaplan Schulhofer-Wohl 2Hobijn -
Stylized facts rediscovered using KNCP
Price level differences● Outlet bias: Households buy at different outletsFaber and Fally (2017)
● Regional price differences are substantialMoretti (2013)
Inflation rates● Regional variation and Phillips curves
Hurst, Beraja, Fuster, Vavra (2016)
● Household level inflation rates
2017-03-31 SF Fed - discussion Kaplan Schulhofer-Wohl 3Hobijn -
Outlet bias only focuses on price!
2017-03-31 SF Fed - discussion Kaplan Schulhofer-Wohl 4Hobijn -
Stylized facts rediscovered using KNCP
Price level differences● Outlet bias: Households buy at different outlets
Faber and Fally (2017)
● Regional price differences are substantialMoretti (2013)
Inflation rates● Regional variation and Phillips curves
Hurst, Beraja, Fuster, Vavra (2016)
● Household level inflation rates
2017-03-31 SF Fed - discussion Kaplan Schulhofer-Wohl 5Hobijn -
Confirm and extend set of facts
● Very large variation in household level inflation rates.
● Variation mainly due to inflation differences withinexpenditure categories (strata)
● Distribution of inflation rates moves in lockstep withoverall inflation
● Little persistence in household level inflation rates
● Substantial substitution across strata
● Poor have 1 percent higher inflation
Hobijn Lagakos (2005)
2017-03-31 SF Fed - discussion Kaplan Schulhofer-Wohl 6Hobijn -
Confirm and extend set of facts
● Very large variation in household level inflation rates.
● Variation mainly due to inflation differences withinexpenditure categories (strata)
● Distribution of inflation rates moves in lockstep withoverall inflation
● Little persistence in household level inflation rates
● Substantial substitution across strata
● Poor have 1 percent higher inflation
Hobijn Lagakos (2005)
2017-03-31 SF Fed - discussion Kaplan Schulhofer-Wohl 7Hobijn -
Four relevant spending categories
t t+4
I
II
III
IV
Spending on same UPC
New goods / cross-UPCsubstitution
Infrequent purchases(durable goods)
Not included
2017-03-31 SF Fed - discussion Kaplan Schulhofer-Wohl 8Hobijn -
Four relevant spending categories
t t+4
I
II
III
IV
Spending on same UPC
New goods / cross-UPCsubstitution
Infrequent purchases(durable goods)
Not included
Slight difference from CPI
In CPI item is defined as anoutlet-ELI
combination
2017-03-31 SF Fed - discussion Kaplan Schulhofer-Wohl 9Hobijn -
Four relevant spending categories
t t+4
I
II
III
IV
Spending on same UPC
New goods / cross-UPCsubstitution
Infrequent purchases(durable goods)
Not included
Present fraction of spendingthat is matched over 4 quarters.
Does it depend on demographicsor income?
2017-03-31 SF Fed - discussion Kaplan Schulhofer-Wohl 10Hobijn -
Four relevant spending categories
t t+4
I
II
III
IV
Spending on same UPC
New goods / cross-UPCsubstitution
Infrequent purchases(durable goods)
Not included
Fashion
Liegey (1994)
2017-03-31 SF Fed - discussion Kaplan Schulhofer-Wohl 11Hobijn -
Four relevant spending categories
t t+4
I
II
III
IV
Spending on same UPC
New goods / cross-UPCsubstitution
Infrequent purchases(durable goods)
Not included
New goods bias
Bils (2009)
2017-03-31 SF Fed - discussion Kaplan Schulhofer-Wohl 12Hobijn -
Four relevant spending categories
t t+4
I
II
III
IV
Spending on same UPC
New goods / cross-UPCsubstitution
Infrequent purchases(durable goods)
Not included
Cross-UPC substitutionthat is not captured in household level
inflationBroda and Romalis (2008)
2017-03-31 SF Fed - discussion Kaplan Schulhofer-Wohl 13Hobijn -
Four relevant spending categories
t t+4
I
II
III
IV
Spending on same UPC
New goods / cross-UPCsubstitution
Infrequent purchases(durable goods)
Not included
Price index theory really notapplicable to intertemporal
optimization problemBils and Klenow (2001), Reis (2010)
2017-03-31 SF Fed - discussion Kaplan Schulhofer-Wohl 14Hobijn -
Four relevant spending categories
t t+4
I
II
III
IV
Spending on same UPC
New goods / cross-UPCsubstitution
Infrequent purchases(durable goods)
Not included
External validity?Could inflation differentialsdocumented be offset byones in other categories?
2017-03-31 SF Fed - discussion Kaplan Schulhofer-Wohl 15Hobijn -
Policy implications...
Monetary policy
● Aggregate index of inflation representative of broadchanges in price level
– Cross sectional distribution of prices moves in lockstepwith published inflation measure.
Other policies
● Demographics and income-dependent indexation ofbenefits and tax brackets
– Persistent differences across groups suggest differentCOLAs.
– However, not much persistence at the individualhousehold level.
