non-tradable sector – Bank Underground

Ambrogio Cesa-Bianchi, Federico Di Pace, Aydan Dogan and Alex Haberis

The recent steep rise in energy prices led to a rise in the price of energy-intensive tradable goods, with inflationary pressures subsequently broadening into services in many economies. Because services are less traded and have little energy input some have suggested this broadening might indicate inflationary pressures becoming more persistent. In this post, we explore the issue through the lens of a stylised two-country model with a tradable and a non-tradable sector. It suggests that following an energy price shock: i) the broadening of inflation from goods to services need not imply more persistent inflationary pressure or changed longer-run expectations, but may reflect one-off adjustments via domestic labour markets; and ii) Inflationary pressures in non-tradable sectors can still have sizable international spillovers.

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Sophie Piton

From the introduction of the Euro up to the 2008 global financial crisis, macroeconomic imbalances widened among Member States. These imbalances took the form of strong differences in the dynamics of unit labour costs, which increased much faster in ‘peripheral’ economies than in ‘core’ countries. At first, these imbalances were interpreted as reflecting a catch-up and convergence process within the Euro Area – and were supposed to fall as countries converged. But, more recently economists and policymakers have challenged this view, suggesting that imbalances reflected a broader competitiveness problem in the ‘periphery’ compared to the ‘core’ countries. This post, based on a recent Staff Working Paper, revisits the effect of economic integration on macroeconomic imbalances.

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Tag: non-tradable sector

Tradable cost shocks and non-tradable inflation: real wages and spillovers

How economic integration fuels macroeconomic imbalances