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Relative Price Dispersion and the Rate of Inflation: The Evidence from Japan

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Author Info

  • Holly, Sean

    ()
    (University of Cambridge)

Abstract

The relationship between inflation and price variability has been of interest to economists for many years. Recently, Ball and Mankiw [1995] have proposed a menu-cost model of price stickiness in which the skewness of relative price infla - tion matters as well as the standard deviation. In this paper their model is test - ed on Japanese wholesale price data. The results are mixed. When we use the single equation approach of Ball and Mankiw the results appear to favour their model. However, once we condition inflation on the growth in the money stock and allow for the simultaneity of inflation and relative price variability predict - ed by a Lucas type misperceptions model, then the effects postulated by Ball and Mankiw largely disappear, while inflation seems to drive both the standard devi - ation and skewness of relative prices.

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Bibliographic Info

Article provided by Center for Economic Integration, Sejong University in its journal Journal of Economic Integration.

Volume (Year): 12 (1997)
Issue (Month): ()
Pages: 206-226

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Handle: RePEc:ris:integr:0047

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Web page: http://econo.sejong.ac.kr/
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Related research

Keywords: Relative; Price; Dispersion;

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Cited by:
  1. Jörg Döpke & Christian Pierdzioch, 2001. "Inflation and the Skewness of the Distribution of Relative Price Changes: Empirical Evidence for Germany," Kiel Working Papers 1059, Kiel Institute for the World Economy.
  2. A. Nazif Catik & Christopher Martin & A. Özlem Önder, 2008. "Relative Price Variability and the Philips Curve: Evidence from Turkey," Working Papers 0807, Ege University, Department of Economics.

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