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Relative Price Variability and Inflation

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  • Hartman, Richard
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    Abstract

    Regression studies have established that there tend to be convex, nonsymmetric relationships between relative price variability and the inflation rate, unanticipated inflation, and the change in the inflation rate. This paper shows that such regression results follow as "definitional artifacts" for a simple but quite general stochastic model of price changes. The analysis is based on the fact that the definitions of relative price variability, the inflation rate, unanticipated inflation, and the change in the inflation rate imply a particular structure for the covariances among these variables. The structure of these covariances has implications for the regression coefficients. Copyright 1991 by Ohio State University Press.

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    Bibliographic Info

    Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

    Volume (Year): 23 (1991)
    Issue (Month): 2 (May)
    Pages: 185-205

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    Handle: RePEc:mcb:jmoncb:v:23:y:1991:i:2:p:185-205

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    Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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    Cited by:
    1. Erica L. Groshen & Mark E. Schweitzer, 1994. "The effects of inflation on wage adjustments in firm-level data: grease or sand?," Working Paper 9418, Federal Reserve Bank of Cleveland.
    2. David Parsley Helen Popper, 2002. "Inflation And Price Dispersion In Equity Markets And In Goods And Services Markets," Macroeconomics 0211004, EconWPA.
    3. Erica L. Groshen & Mark E. Schweitzer, 1996. "Macro- and microeconomic consequences of wage rigidity," Working Paper 9607, Federal Reserve Bank of Cleveland.
    4. Stanley C. W. Salvary, 2005. "Informedness Of Economic Agents And The Quantity Theory Of Money," Macroeconomics 0512005, EconWPA.
    5. Christos Ioannidis & Mick Silver, 2001. "The influence of inflation on differential price changes across European markets," Atlantic Economic Journal, International Atlantic Economic Society, vol. 29(1), pages 31-47, March.
    6. Matthias R. Fengler & Joachim K. Winter, 2007. "Price variability and price dispersion in a stable monetary environment: evidence from German retail markets," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(7), pages 789-801.
    7. Bill Russell, 2002. "The Long Run Relationships among Price Variability, Inflation and the Markup," Dundee Discussion Papers in Economics 127, Economic Studies, University of Dundee.
    8. Paulo Drummond, 1993. "Optimum pricing policy, government induced shocks and the dispersion of relative prices in Brazil," Revista Brasileira de Economia, FGV/EPGE Escola Brasileira de Economia e Finan├žas, Getulio Vargas Foundation (Brazil), vol. 47(4), pages 503-532, October.
    9. Banerjee, Anindya & Mizen, Paul & Russell, Bill, 2007. "Inflation, relative price variability and the markup: Evidence from the United States and the United Kingdom," Economic Modelling, Elsevier, vol. 24(1), pages 82-100, January.
    10. Bakhshi, Hasan, 2002. "Inflation and relative price variability," Economics Letters, Elsevier, vol. 76(1), pages 27-33, June.

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