Figure 1: Illustration of a Retailer's Equilibrium
This graph illustrates a retailer's equilibrium using a two-dimensional plot. The x-axis represents the "Stock of goods, a" and the y-axis represents the "Price markup, μ". The graph contains three main curves:
Dotted lines extend from these intersection points to their respective axis values for clarity. A note below the graph states: "This plot is illustrative. A finished-goods inventory model with a negatively sloped stocking curve would yield qualitatively similar implications."
This visualization demonstrates how changes in the stocking curve (from ξ* to ξ**) affect the equilibrium point, resulting in a lower stock of goods and a higher price markup.
Figure 2: Model Fit
The figure presents four panels, where all panels plot four-quarter inflation rate in percent between 2005q1 and 2025q1. In each panel, there are three lines. First, the black dashed line, labeled "Data", plots the data, which is goods PCE inflation for Panels A and B, and headline PCE inflation for Panels C and D. Second, the red dotted line, labeled "Canonical NKPC", plots the fitted inflation from estimating either the goods NKPC with specification (1) in Table 3 (Panels A and B), or the NKPC with specification (4) in Table 3 (Panels C and D). In detail, a canonical NKPC specification is with the current marginal cost, lagged inflation, and expected inflation as right-hand side variables. Third, the blue solid line, labeled "Stock-based NKPC", plots the fitted inflation from estimating either the goods NKPC with specification (3) in Table 3 (Panels A and B), or the NKPC with specification (6) in Table 3 (Panels C and D). In detail, a stock-based NKPC specification with the difference between expected future marginal cost and the current marginal cost, lagged inflation, expected inflation, and the inventory-sales ratio as right-hand side variables. Panels A and C use SPF expectations as the measure of expected inflation, whereas Panels C and D use Michigan expectations as the measure of expected inflation. In all panels, the focus is on two periods, the 2009-2011 missing disinflation period, and the 2021-22 COVID inflation period. In each panels, we see that the black dashed line is better tracked by the blue solid line than the red dashed line, suggesting that the stock-based NKPC fits the data better than the canonical NKPC, for both goods and headline PCE inflation, using either SPF or Michigan expectations.
Figure A.1: Breakdown of Purchasers' Value for PCE Goods
The figure breaks down the purchasers’ value for PCE goods in each year by four categories: the producers’ value in the black bar, the transportation cost in the dark-gray bar, the wholesale trade margin in the light-gray bar, and the retail trade margin in the white bar. The four bars are stacked and add up to 100 percent. The bars are shown for each year between 2007 and 2023. We observe that the producers’ value is about 50 to 60 percent of the purchasers’ value for PCE goods, followed by the retail trade margin which is about 30 to 40 percent of the purchasers’ value, with an increasing trend. The wholesale trade margin is about 10 percent, and transportation costs are small at around 1-2 percent. The main message of this figure is the large share of retail and wholesale trade margins in terms of purchasers’ value for PCE goods.
Figure D.1: Pseudo-out-of-sample Model Fit (One-quarter-ahead)
Similar in structure to Figure 2, the figure presents four panels, each plotting four-quarter inflation rate in percent between 2019q3 and 2025q3. As in Figure 2, the black dashed line is data, the red dashed line is canonical NKPC and the blue solid line is the stock-based NKPC. Panels A and B use goods PCE inflation as the data and fits the goods NKPC. Panels C and D use headline PCE inflation as the data and fits the headline NKPC. Panels A and C use SPF inflation expectations and Panels B and D use Michigan inflation expectations. Both the red dashed line and the blue solid line plot the one-quarter-ahead pseudo-out-of-sample forecast for inflation based on the fitted model. The message across all for panels is that the blue solid line fits the data better than the red dotted line, indicating that the stock-based NKPC better forecasts inflation during this period compared to forecasts based on the canonical NKPC.