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Friedman's Hypothesis and Cross-Regional Inflation Dispersion

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  • Shoesmith, Gary L.
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    Abstract

    This study shows that higher inflation is associated with increased inflation dispersion across U.S. cities and regions. Regression analysis indicates that cross-regional inflation variability is positively related to both inflation and inflation expectations based on consumer price inflation for 18 U.S. cities. Similar results are obtained after excluding five of the 18 cities that may be disproportionately impacted by energy shocks. In addition, cointegration analysis shows greater cross-regional price dispersion over time during the higher inflation period of 1978-1987 than during 1988-1997. These findings suggest that high inflation is associated with greater uncertainty for businesses and policy makers.

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    File URL: http://purl.umn.edu/50156
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    Bibliographic Info

    Article provided by Review of Applied Economics in its journal Review of Applied Economics.

    Volume (Year): 3 (2007)
    Issue (Month): 1-2 ()
    Pages:

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    Handle: RePEc:ags:reapec:50156

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    Web page: http://www.lincoln.ac.nz/story11874.html

    Related research

    Keywords: urban inflation; Friedman's Hypothesis; cointegration; Financial Economics; E30; E31;

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    1. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    2. Stanley Fischer, 1981. "Relative Shocks, Relative Price Variability, and Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(2), pages 381-442.
    3. Debelle, Guy & Lamont, Owen, 1997. "Relative Price Variability and Inflation: Evidence from U.S. Cities," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 132-52, February.
    4. Friedman, Milton, 1977. "Nobel Lecture: Inflation and Unemployment," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 451-72, June.
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