Hie Joo Ahn and Matteo LucianiWe disentangle price changes due to economy-wide shocks from those driven by idiosyncratic shocks by estimating a two-regime dynamic factor model with dynamic loadings on a new large dataset of finely disaggregated monthly personal consumption expenditures price inflation indexes for 1959-2023. We find that up to the mid-1990s and after the Covid pandemic, common shocks were the primary driver of US inflation dynamics and had long-lasting effects. In between, idiosyncratic shocks were the main driver, and common shocks had short-lived effects.
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