📄Link to the paper:

davideusula.github.io/assets/pdf/d...

Comments and thoughts are very welcome!

@isabellamweber.bsky.social @mnikiforos.bsky.social @leiladavis1.bsky.social @karstenkohler.bsky.social @fsaraceno.bsky.social @sgechert.bsky.social

Discussion:

▪️Inflation as an emergent property of the system (in the spirit of K+S, Dosi et al. 2010).

▪️It results from and amplifies distributive tensions (Rowthorn 1977; Lorenzoni & Werning 2023): a self-reinforcing mechanism driving income distribution.

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Implications 🏛️

Monetary policy cannot be regime-neutral. Standard tightening is often "blind" to power: it hits labor harder while firms keep passing costs to prices.

Stability requires counterbalancing market power & pricing leverage, not just curbing wages. 🎯

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Robustness ⚠️

1️⃣Alternative measures (CPI, PCE) & detrending (CF filter)

2️⃣Discrete Wavelet Regression showing a coefficient reversal at cyclical frequencies: from wage-led (1970s) to profit-led (post-2008)

✅A shift in the distributive transmission mechanism

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The Mechanics ⚙️

Beyond "Greedflation" narrative (Weber & Wasner 2023), it is power asymmetry:

🥊 Wage-led: Workers fight to protect shares
🏄‍♂️ Profit-led: Firms win as prices hold while wages lag

Price spirals effectively shift income shares (labor vs profit). 🌀

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Simulation scenarios📽️ Three archetypal regimes to see how the system reacts:

⚖️ S1 (Stable): Balanced claims & full indexation

🏄‍♂️ S2 (Profit-led): Weak indexation & high markup elasticity (Post-2008)

🥊 S3 (Wage-led): Over-indexation & strong labor power (The 1970s)

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Model innovation 🏗️

Building on the conflict-inflation revival (Lorenzoni & Werning, 2023), we extend the predator-prey model.

How? We integrate

1️⃣cost-plus pricing rule with nominal stickiness
2️⃣endogenous markup expectations
3️⃣price-augmented wage Phillips curve

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🛠️Formalization🛠️ : a nonlinear system where inflation = competing claims (Wage + Profit) ⚖️

1️⃣Firms: Prices adjust to desired markups

2️⃣Workers: Wages respond to labor tightness 3️⃣Loops: Markups evolve with profits & demand

A closed-loop conflict engine.

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Theory 💡: we build a 3-dimensional predator-prey model to formalize this tug-of-war between wages & profits.

Inflation is an emergent property of these nonlinear feedback loops.

Bargaining power determines if the system flips into wage–price or profit–price spirals. 🌀
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Mechanisms ⚙️: a shift of power

🥊 Past (Wage-led): High labor power. Firm price hikes triggered worker "counter-claims". A persistent spiral.

🏄‍♂️ Now (Profit-led): Firms 'surf' shocks & pass costs while wages stay inert.

Inflation asymmetrically decides who pays.

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Empirical findings 📊

1️⃣ 70s (Wage-led): Strong labor. Wages lead prices. Spirals🥊
2️⃣ Great Moderation: Decoupling. Structural shifts break the link 📉
3️⃣ Today (Profit-led): Profits lead, real wages lag. Squeeze🔄

Same inflation, different distributive engine.

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❓How do we track these shifting power dynamics? 🔍

We use wavelet decomposition on US quarterly data (1960-2023).

This lets us detect transient dynamics and structural breaks: who leads, who follows, and how the phase-sync changes across different historical phases. 🌊

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Core idea: inflation is seen as the 'valve' of a struggle over income shares. 🔄

Power is key, not just to trigger shocks, but to surf price phases and steer income distribution. 🥊

It’s about who has the power to adjust their claims and dictate the direction.

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