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Inflation and relative price variability in the euro area: evidence from a panel threshold model

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  • Dieter Nautz
  • Juliane Scharff

Abstract

The impact of inflation on Relative Price Variability (RPV) generates an important channel for real effects of inflation. This article provides first evidence on the empirical relation between inflation and RPV in the euro area. Stirred by the widespread use of inflation caps or target bands in monetary policy practice, we are particularly interested in threshold effects of inflation. In line with the predictions of monetary search models, our results indicate that expected inflation significantly increases RPV only if inflation is either very low (below 0.95% per annum (p.a.)) or very high (above 4.96% p.a.).

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File URL: http://hdl.handle.net/10.1080/00036846.2010.508729
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 44 (2012)
Issue (Month): 4 (February)
Pages: 449-460

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Handle: RePEc:taf:applec:44:y:2012:i:4:p:449-460

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Citations

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Cited by:
  1. María Ángeles Caraballo & Carlos Dabús., 2008. "The Determinants of Relative Price Variability: Further Evidence from Argentina," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 45(132), pages 235-255.
  2. Bick, Alexander, 2010. "Threshold effects of inflation on economic growth in developing countries," Economics Letters, Elsevier, vol. 108(2), pages 126-129, August.
  3. Rather, Sartaj Rasool & Durai, S. Raja Sethu & Ramachandran, M., 2014. "Inflation and relative price variability: Evidence for India," Journal of Asian Economics, Elsevier, vol. 30(C), pages 32-41.

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