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Is there any asymmetry in the effect of inflation on relative price variability?

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  • Choi, Chi-Young
  • Kim, Young Se

Abstract

It is widely perceived that relative prices are more dispersed in periods of price decreases than in periods of price increases. We show that the asymmetry results from misspecifying the true, U-shaped, underlying model with a piecewise linear regression model.

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Bibliographic Info

Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 108 (2010)
Issue (Month): 2 (August)
Pages: 233-236

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Handle: RePEc:eee:ecolet:v:108:y:2010:i:2:p:233-236

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Web page: http://www.elsevier.com/locate/ecolet

Related research

Keywords: Asymmetry Inflation Relative price variability (RPV) U-shape;

References

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  1. Timothy Cogley & Giorgio E. Primiceri & Thomas J. Sargent, 2010. "Inflation-Gap Persistence in the US," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(1), pages 43-69, January.
  2. Argia M. Sbordone, 2007. "Inflation persistence: alternative interpretations and policy implications," Staff Reports 286, Federal Reserve Bank of New York.
  3. Perron, P. & Bai, J., 1995. "Estimating and Testing Linear Models with Multiple Structural Changes," Cahiers de recherche 9552, Centre interuniversitaire de recherche en ├ęconomie quantitative, CIREQ.
  4. 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.
  5. Ball, L. & Mankiw, N.G., 1992. "Asymmetric Price Adjustment and Economic Fluctuations," Harvard Institute of Economic Research Working Papers 1602, Harvard - Institute of Economic Research.
  6. Reinsdorf, Marshall, 1994. "New Evidence on the Relation between Inflation and Price Dispersion," American Economic Review, American Economic Association, vol. 84(3), pages 720-31, June.
  7. Jaramillo, Carlos Felipe, 1999. "Inflation and Relative Price Variability: Reinstating Parks' Results," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(3), pages 375-85, August.
  8. Parks, Richard W, 1978. "Inflation and Relative Price Variability," Journal of Political Economy, University of Chicago Press, vol. 86(1), pages 79-95, February.
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Cited by:
  1. Muhammad Akmal, 2012. "The Relationship between Inflation and Relative Price Variability in Pakistan," Working Papers id:4734, eSocialSciences.
  2. Rather, Sartaj Rasool & Durai, S. Raja Sethu & Ramachandran, M., 2014. "Inflation and relative price variability: Evidence for India," Journal of Asian Economics, Elsevier, vol. 30(C), pages 32-41.

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