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Inflation And The Distribution Of Price Changes

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Author Info
Michael F. Bryan
Stephen G. Cecchetti

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Abstract

This paper reconsiders the empirical evidence connecting inflation to its higher-order moments. In particular, we examine the statistical properties of the observed positive correlation between the sample mean and the sample cross-sectional skewness of price changes. This correlation has attracted substantial attention over the years and has recently been the focal point of a debate among macroeconomists. We show that the sample mean-skewness correlation suffers from a smallsample bias that accounts for the entirety of the observed correlation. In other words, we establish that one of the stylized facts in the literature on aggregate price behavior need not be a fact at all. © 2000 by the President and Fellows of Harvard College and the Massachusetts Institute of Technolog

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Publisher Info
Article provided by MIT Press in its journal The Review of Economics and Statistics.

Volume (Year): 81 (1999)
Issue (Month): 2 (May)
Pages: 188-196
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Handle: RePEc:tpr:restat:v:81:y:1999:i:2:p:188-196

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Newey, Whitney K & West, Kenneth D, 1987. "A Simple, Positive Semi-definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix," Econometrica, Econometric Society, vol. 55(3), pages 703-08, May. [Downloadable!] (restricted)
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  2. Nathan S. Balke & Mark A. Wynne, 1996. "An equilibrium analysis of relative price changes and aggregate inflation," Working Papers 96-09, Federal Reserve Bank of Dallas. [Downloadable!]
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  3. Michael F. Bryan & Stephen G. Cecchetti, 1994. "Measuring Core Inflation," NBER Chapters, in: Monetary Policy, pages 195-219 National Bureau of Economic Research, Inc. [Downloadable!]
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  4. George A. Akerlof & William R. Dickens & George L. Perry, 1996. "The Macroeconomics of Low Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1996-1), pages 1-76. [Downloadable!]
  5. Ball, Laurence & Mankiw, N Gregory, 1995. "Relative-Price Changes as Aggregate Supply Shocks," The Quarterly Journal of Economics, MIT Press, vol. 110(1), pages 161-93, February. [Downloadable!] (restricted)
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  6. Stephen G. Cecchetti, 1997. "Measuring short-run inflation for central bankers," Review, Federal Reserve Bank of St. Louis, issue May, pages 143-155. [Downloadable!]
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  7. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May. [Downloadable!] (restricted)
  8. Vining, Daniel R, Jr & Elwertowski, Thomas C, 1976. "The Relationship between Relative Prices and the General Price Level," American Economic Review, American Economic Association, vol. 66(4), pages 699-708, September. [Downloadable!] (restricted)
  9. N. Gregory Mankiw, 1994. "Monetary Policy," NBER Books, National Bureau of Economic Research, Inc, number greg94-1.
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