The case for price controls?
In this paper, Weber et al. take into account distributional considerations with an input-output model of inflation, differentiating between certain goods and sectors. They examine how sector-specific shocks are related to overall price stability and whether shocks in some sectors matter more for general price stability than in others. The authors simulate a price shock to each of the 71 industries in the input-output table published by the U.S. Bureau of Economic Analysis to analyze how this shock cascades as a cost shock through the whole system, leading to changes in the general price level. They find that the sectors with systemically significant prices fall into three groups: energy, basic production inputs other than energy, basic necessities, and commercial and financial infrastructure. Specifically, they are “Petroleum and coal products”, “Oil and gas extraction”, “Utilities”, “Chemical products”, “Farms”, “Food and beverage and tobacco products”, “Housing”, and “Wholesale trade”. The authors explain that in periods of overlapping emergencies, such as COVID and the war in Ukraine, price stabilization should go beyond monetary policy.
Price stabilization policies can thereby take different forms ranging from strict price gouging legislation, automatic taxes on windfall profits for systemically significant prices that become effective in emergency situations, to strategic price caps. Strict regulation on financial speculation in systemically significant sectors and anti-trust legislation could also play an important role.
Inflation in Times of Overlapping Emergencies: Systemically Significant Prices from an Input-output Perspective
Authors: Isabella M. Weber, Jesús Lara Jauregui, Lucas Teixeira, Luiza Nassif Pires
From: University of Massachusetts Amherst, University of Campinas, University of São Paulo
