Speaker: Alvaro Silva
Affiliation: Federal Reserve Bank of Boston
Date and time: Wednesday, November 5, 2025 14:30 (Santiago, GMT-04:00)
Location (In-person Seminar): Sala Pedro Lira at the Central Bank of Chile, Agustinas 1180.

Registration: seminarios@bcentral.cl

Abstract: This paper studies inflation in small open economies with production networks. I show that the production network alters the elasticity of the consumer price index (CPI) to changes in sectoral technology, factor prices, and import prices. Sectors can import and export directly but also indirectly through domestic intermediate input-output linkages. Indirect exporting dampens the inflationary pressure from domestic forces, such as adverse sectoral technology shocks and increases in factor prices. In contrast, indirect importing increases the inflation sensitivity to import price changes. Computing these CPI elasticities requires knowledge of the production network structure as these do not coincide with typical sufficient statistics used in the literature, such as sectoral sales-to-GDP ratios (Domar weights), factor shares, or imported consumption shares. Using input-output tables, I provide empirical evidence that adjusting CPI elasticities for indirect exports and imports matters quantitatively for small open economies. I then use the model to illustrate the importance of production networks during the recent COVID-19 inflation in Chile and the United Kingdom.