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Relative Price Variability and Inflation in Europe

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  • David Fielding
  • Paul Mizen

Abstract

The relationship between inflation and the relative variability of prices has been the subject of careful investigation in the United States using data for product groups at the city level. Yet in Europe, where the relationship could have profound effects on the viability of monetary integration, no attempt has been made to study the relationship. This paper fills the gap by examining data disaggregated to the commodity level across 10 EU countries. Evidence is found for logistic smooth transitions in the relative price variability measures within countries and within product groups. When this deterministic component isremoved, the stochastic element is not persistent and does not always have the positive relationship with inflation commonly found in US city data.

Suggested Citation

  • David Fielding & Paul Mizen, 2000. "Relative Price Variability and Inflation in Europe," Economica, London School of Economics and Political Science, vol. 67(265), pages 57-78, February.
    • Handle: RePEc:bla:econom:v:67:y:2000:i:265:p:57-78
    DOI: 10.1111/1468-0335.00195
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    Cited by:

    1. Bakhshi, Hasan, 2002. "Inflation and relative price variability," Economics Letters, Elsevier, vol. 76(1), pages 27-33, June.
    2. Baglan, Deniz & Ege Yazgan, M. & Yilmazkuday, Hakan, 2016. "Relative price variability and inflation: New evidence," Journal of Macroeconomics, Elsevier, vol. 48(C), pages 263-282.
    3. Becker, Sascha S. & Nautz, Dieter, 2012. "Inflation, price dispersion and market integration through the lens of a monetary search model," European Economic Review, Elsevier, vol. 56(3), pages 624-634.
    4. Andersen, Torben M., 2002. "Nominal rigidities and the optimal rate of inflation," European Journal of Political Economy, Elsevier, vol. 18(2), pages 375-389, June.
    5. Dieter Nautz & Juliane Scharff, 2012. "Inflation and relative price variability in the euro area: evidence from a panel threshold model," Applied Economics, Taylor & Francis Journals, vol. 44(4), pages 449-460, February.
    6. M. Angeles Caraballo & Carlos Dabus & Carlos Usabiaga, 2006. "Relative prices and inflation: new evidence from different inflationary contexts," Applied Economics, Taylor & Francis Journals, vol. 38(16), pages 1931-1944.
    7. Saghir Pervaiz Ghauri & Rizwan Raheem Ahmed & Jolita Vveinhardt & Dalia Streimikiene, 2017. "Estimation of Relationship between Inflation and Relative Price Variability: Granger Causality and ARDL Modelling Approach," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 19(44), pages 249-249, February.
    8. Hassen, Ben Naceur, 2014. "Expense items: test on items generating inflation," MPRA Paper 78977, University Library of Munich, Germany.
    9. Baek, Jungho, 2010. "Inflation and Intramarket Price Variability: Empirical Evidence from U.S. Food Products," Journal of Rural Development/Nongchon-Gyeongje, Korea Rural Economic Institute, vol. 33(4), pages 1-19, October.
    10. Ozlem Onaran & Nurhan Yenturk, 2001. "Do Low Wages Stimulate Investment? An analysis of the relationship between distribution and investment in Turkish private manufacturing industry," International Review of Applied Economics, Taylor & Francis Journals, vol. 15(4), pages 359-374.
    11. Dieter Nautz & Juliane Scharff, 2005. "Inflation and Relative Price Variability in a Low Inflation Country: Empirical Evidence for Germany," German Economic Review, Verein für Socialpolitik, vol. 6(4), pages 507-523, November.
    12. Cleomar Gomes da Silva & Gilberto O. Boaretto, 2018. "Inflation and Relative Price Variability in Brazil: A Time-Varying Parameter Approach," Economics Bulletin, AccessEcon, vol. 38(4), pages 1947-1956.
    13. Juliane Scharff & Sven Schreiber, 2012. "Evidence on the effects of inflation on price dispersion under indexation," Empirical Economics, Springer, vol. 43(1), pages 291-311, August.
    14. David Fielding & Paul Mizen, 2008. "Evidence on the Functional Relationship between Relative Price Variability and Inflation with Implications for Monetary Policy," Economica, London School of Economics and Political Science, vol. 75(300), pages 683-699, November.
    15. Alexander Bick & Dieter Nautz, 2008. "Inflation Thresholds and Relative Price Variability: Evidence from U.S. Cities," International Journal of Central Banking, International Journal of Central Banking, vol. 4(3), pages 61-76, September.
    16. Abdul Karim, Zulkefly & Zaidi, Mohd Azlan Shah & Jusoh, Mansor, 2008. "Variabiliti harga relatif dan inflasi : bukti empirikal di Semenanjung Malaysia, Sabah dan Sarawak [Relative price variability and inflation: empirical evidence in Peninsular Malaysia, Sabah and Sa," MPRA Paper 26970, University Library of Munich, Germany, revised Jun 2008.
    17. María Ángeles Caraballo & Carlos Dabús., 2008. "The Determinants of Relative Price Variability: Further Evidence from Argentina," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 45(132), pages 235-255.
    18. David Parsley Helen Popper, 2002. "Inflation And Price Dispersion In Equity Markets And In Goods And Services Markets," Macroeconomics 0211004, University Library of Munich, Germany.
    19. Mª Ángeles Caraballo Pou & Carlos Dabús & Diego Caramuta, 2006. "A Non-linear "Inflation-Relative Prices Variability" Relationship: Evidence from Latin America," Economic Working Papers at Centro de Estudios Andaluces E2006/09, Centro de Estudios Andaluces.
    20. Cleomar Gomes da Silva, 2015. "Relative price variability in Brazil: an analysis of headline and core inflation rates [Relative price variability in Brazil: an analysis of headline and core inflation rates]," Nova Economia, Economics Department, Universidade Federal de Minas Gerais (Brazil), vol. 25(1), pages 83-100, January-A.
    21. R. A. Somerville, 2004. "Changes in Relative Consumer Prices and the Substitution Bias of the Laspeyres Price Index - Ireland, 1985-2001," The Economic and Social Review, Economic and Social Studies, vol. 35(1), pages 55-82.
    22. Sascha S. Becker, 2011. "What Drives the Relationship Between Inflation and Price Dispersion? Market Power vs. Price Rigidity," SFB 649 Discussion Papers SFB649DP2011-019, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.

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