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On the Dynamics of Relative Prices and the Relationship with Inflation: An Empirical Approach

Author

Listed:
  • Emiliano Alvarez

    (Universidad de la República)

  • Juan Gabriel Brida

    (Universidad de la República)

  • Pablo Mones

    (Universidad de la República)

Abstract

This paper introduces a dynamic threshold-minimum dominating set to represent the structure and evolution of relative prices in the economy. Due to the dynamic nature of the links between prices, the construction of a dynamic synthetic index is also proposed, and its properties and components are studied. The empirical results allow us to identify the most relevant nodes in the price network of the Uruguayan economy. With this set of prices, a synthetic index was generated that allows making more correlated projections with the original index and less error than indices of the same size used as benchmarks. The scope of these improvements in projections in the context of complex networks and their consequences in the design of anti-inflation policies are discussed. The empirical exercise reveals that -for the case of Uruguay- food prices are particularly relevant in this threshold-minimum dominating set; this result is discussed in the context of developing economies and globalized industries.

Suggested Citation

  • Emiliano Alvarez & Juan Gabriel Brida & Pablo Mones, 2024. "On the Dynamics of Relative Prices and the Relationship with Inflation: An Empirical Approach," Computational Economics, Springer;Society for Computational Economics, vol. 63(1), pages 339-355, January.
    • Handle: RePEc:kap:compec:v:63:y:2024:i:1:d:10.1007_s10614-022-10342-7
    DOI: 10.1007/s10614-022-10342-7
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    References listed on IDEAS

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