Abstract
Using new quarterly data on consumer price inflation for the state of Pennsylvania, we study the persistence and sensitivity of consumer price inflation to both internal and external determinants of potential pass-through. Leveraging an autoregressive distributed lag modeling framework that approximates an augmented state-specific Phillips Curve, we find that the dynamics of house price inflation, and the unemployment gap are the two strongest sources of internal inflation pass-through while producer price inflation, and money supply growth are the two strongest sources of external inflation pass-through. Relative to neighboring states, we find the persistence of inflation to be the strongest in Pennsylvania suggesting that goods prices are highly rigid. Policymakers in Pennsylvania would be advised to consider the importance of the local housing market and employment gap when constructing and monitoring the trajectory of prices in the state. Furthermore, policymakers would also be advised to enact policies aimed at reigning in inflation over longer intervals given the persistence of the state's inflation rate.
Recommended Citation
Williams, Corey
(2024)
"INTERNAL AND EXTERNAL DETERMINANTS OF SHORT-RUN INFLATION IN PENNSYLVANIA,"
Pennsylvania Economic Review: Vol. 31:
No.
2, Article 2.
Available at:
https://digitalcommons.wcupa.edu/pennsylvania-economic-review/vol31/iss2/2
