Interesting research. Worth reading. #financialservices #financialadviser #financialplanners
Changes in supply and demand can change the price of a good or service. Typically, an increase in supply causes the price to fall, whereas an increase in demand causes the price to rise. Economists are often interested in estimating how much price changes are driven by supply or demand ‘shocks’. This was a particularly important question following the COVID-19 pandemic and the rise in inflation in many advanced economies – was this due to supply or demand factors? And depending on the answer, how should monetary policy respond? The contributions of supply and demand shocks can be estimated using econometric models. One popular approach requires making assumptions about how the economy works and one of these assumptions is that supply curves are upward sloping and demand curves are downward sloping (‘sign restrictions’). There is general agreement that this assumption is correct, but it does not allow us to exactly estimate the contributions of shocks. Instead, it only allows us to say that the contributions lie within a range. Our researcher aimed to clarify what we can learn about the contributions of shocks to price changes when making assumptions about the slopes of supply and demand curves. Read the paper to learn more: https://bit.ly/3Mdkv9S Want to get to know our researchers? Check out our Researcher Profiles: https://bit.ly/3yK2IEb
