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Inflation and Relative Price Variability

Author

Listed:
  • Muhammad Akmal

    (State Bank of Pakistan)

Abstract

This paper explores the nature of relationship between inflation and relative price variability (RPV). It finds a U-shape relationship between the two that not only fits the overall data well but also different inflationary regimes as identified by Bai-Perron multiple structural break tests. It was also found that threshold level of inflation, in terms of RPV, varies with general inflationary phases, i.e., in period of low inflation, the threshold inflation is also low and vice versa. It suggests a cautious monetary policy during different phases of inflation.

Suggested Citation

  • Muhammad Akmal, 2011. "Inflation and Relative Price Variability," SBP Research Bulletin, State Bank of Pakistan, Research Department, vol. 7, pages 1-9.
    • Handle: RePEc:sbp:journl:56
    as

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    File URL: http://www.sbp.org.pk/research/bulletin/2011/Vol-7-2/1articleAkmal.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    relative price variability; inflation; threshold inflation;
    All these keywords.

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • 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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