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Relative price variability and inflation: New evidence

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  • Baglan, Deniz
  • Ege Yazgan, M.
  • Yilmazkuday, Hakan

Abstract

This paper investigates the relationship between relative price variability (RPV) and inflation using monthly micro-price data for 128 goods in 13 Turkish regions/cities for the period 1994–2010. The unique feature of this data set is the inclusion of annual inflation rates ranging between 0% and 90%. Semi-parametric estimations show that there is a hump-shaped relationship between RPV and inflation, where the maximum RPV is achieved when annual inflation is approximately 20%. It is shown that this result is consistent with a region- or city-level homogenous menu cost model that features Calvo pricing with an endogenous contract structure and non-zero steady-state inflation.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:jmacro:v:48:y:2016:i:c:p:263-282
    DOI: 10.1016/j.jmacro.2016.04.004
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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Relative Price Variability and Inflation: New Evidence
      by Hakan Yilmazkuday in Hakan Yilmazkuday's Blog on 2016-06-17 21:00:00

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    5. YAMAK, Rahmi & ERDEM, Havvanur Feyza & KOÇAK, Sinem, 2017. "Relative Price Variability And Inflation In Turkey: Results From Kalman Filter Estimation," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 21(1), pages 28-40.
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    More about this item

    Keywords

    Relative price variability; Inflation; Calvo pricing; Menu costs;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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