Inflation in advanced economies has moved in ways that standard economic theory struggles to explain. For a long time, inflation stayed very low and stable—even through the Great Financial Crisis in the late 2000s and the subsequent recovery in the early 2010s. After the Covid pandemic, inflation surged in many countries, driven by a mix of demand- and supply-side forces.
This project investigates whether these inflation puzzles are linked to recent changes in the market environment. Markets have become more concentrated around a small number of very large firms, more unequal in terms of firm size and productivity, and have simultaneously seen higher markups, fewer new firms entering, weaker investment, and declining labor and capital shares.
Using detailed firm- and price-level data, the project studies how pricing strategies differ across firms and how these differences shape inflation and broader economic outcomes. The evidence will help to design new theory that explains the recent inflation patterns and changing economic dynamics.