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Relative Prices and Inflation: New Evidence from Different Inflationary Contexts

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Abstract

This paper analyzes the relationship between inflation and relative price variability, in the direction of the latter, in two countries with very different inflationary experiences: Argentina and Spain. To address this objective, using disaggregated price indexes (Wholesale Price Index for Argentina and Consumer Price Index for Spain), we delimitate different inflationary regimes and compute a set of regressions for each country. Our results suggest evidence in favor of the non-neutrality of inflation (mostly in hyperinflation periods) and do not support neither the menu costs nor the signal extraction approaches. We also detect significant structural changes in the relationship depending on the inflationary regime.

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Bibliographic Info

Paper provided by Centro de Estudios Andaluces in its series Economic Working Papers at Centro de Estudios Andaluces with number E2004/71.

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Length: 26 pages
Date of creation: 2004
Date of revision:
Handle: RePEc:cea:doctra:e2004_71

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Keywords: inflation; relative price variability; inflation regimes; inflation volatility; expected and unexpected inflation.;

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  1. Fielding, David & Mizen, Paul, 2000. "Relative Price Variability and Inflation in Europe," Economica, London School of Economics and Political Science, vol. 67(265), pages 57-78, February.
  2. Debelle, Guy & Lamont, Owen, 1997. "Relative Price Variability and Inflation: Evidence from U.S. Cities," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 132-52, February.
  3. Blejer, Mario I., 1979. "Inflation variability in Latin America : A note on the time series evidence," Economics Letters, Elsevier, vol. 2(4), pages 337-341.
  4. Mariano Tommasi, 1992. "Inflation and Relative Prices Evidence from Argentina," UCLA Economics Working Papers 661, UCLA Department of Economics.
  5. Blejer, Mario I, 1983. "On the Anatomy of Inflation: The Variability of Relative Commodity Prices in Argentina," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 15(4), pages 469-82, November.
  6. Mustafa Caglayan & Alpay Filiztekin, 2001. "Nonlinear Impact of Inflation on Relative Price Variability," Research Papers 2001_02, University of Liverpool Management School, revised 01 Oct 2002.
  7. Viqueira, Angel Palerm, 1991. "Market structure and price flexibility," Journal of Development Economics, Elsevier, vol. 36(1), pages 37-54, July.
  8. Michael Aarstol, 1999. "Inflation, Inflation Uncertainty, and Relative Price Variability," Southern Economic Journal, Southern Economic Association, vol. 66(2), pages 414-423, October.
  9. Jaramillo, Carlos Felipe, 1999. "Inflation and Relative Price Variability: Reinstating Parks' Results," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(3), pages 375-85, August.
  10. María Ángeles Caraballo & Carlos Usabiaga, 2003. "Análisis de la estructura de la inflación de las regiones españolas: La metodología de Ball y Mankiw," Economic Working Papers at Centro de Estudios Andaluces E2003/44, Centro de Estudios Andaluces.
  11. Dieter Nautz & Juliane Scharff, 2005. "Inflation and Relative Price Variability in a Low Inflation Country: Empirical Evidence for Germany," German Economic Review, Verein für Socialpolitik, vol. 6(4), pages 507-523, November.
  12. Parsley, David C, 1996. "Inflation and Relative Price Variability in the Short and Long Run: New Evidence from the United States," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(3), pages 323-41, August.
  13. Blejer, Mario I., 1981. "The dispersion of relative commodity prices under very rapid inflation," Journal of Development Economics, Elsevier, vol. 9(3), pages 347-356, December.
  14. Michael F. Bryan & Stephen G. Cecchetti, 1996. "Inflation and the Distribution of Price Changes," NBER Working Papers 5793, National Bureau of Economic Research, Inc.
  15. Domberger, Simon, 1987. "Relative Price Variability and Inflation: A Disaggregated Analysis," Journal of Political Economy, University of Chicago Press, vol. 95(3), pages 547-66, June.
  16. Dabus, Carlos, 2000. "Inflationary regimes and relative price variability: evidence from Argentina," Journal of Development Economics, Elsevier, vol. 62(2), pages 535-547, August.
  17. Lach, Saul & Tsiddon, Daniel, 1992. "The Behavior of Prices and Inflation: An Empirical Analysis of Disaggregated Price Data," Journal of Political Economy, University of Chicago Press, vol. 100(2), pages 349-89, April.
  18. Bakhshi, Hasan, 2002. "Inflation and relative price variability," Economics Letters, Elsevier, vol. 76(1), pages 27-33, June.
  19. Sheshinski, Eytan & Weiss, Yoram, 1977. "Inflation and Costs of Price Adjustment," Review of Economic Studies, Wiley Blackwell, vol. 44(2), pages 287-303, June.
  20. Stanley Fischer, 1981. "Relative Shocks, Relative Price Variability, and Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(2), pages 381-442.
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Citations

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Cited by:
  1. Sascha S. Becker, 2011. "What Drives the Relationship Between Inflation and Price Dispersion? Market Power vs. Price Rigidity," SFB 649 Discussion Papers SFB649DP2011-019, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  2. Carlo De Gregorio, 2011. "The dynamics of inflation components and their comparability among countries: the case of the HICP," Rivista di statistica ufficiale, ISTAT - Italian National Institute of Statistics - (Rome, ITALY), vol. 13(1), pages 5-32, December.
  3. Mª Ángeles Caraballo Pou & Carlos Dabús & Diego Caramuta, 2006. "A Non-linear "Inflation-Relative Prices Variability" Relationship: Evidence from Latin America," Economic Working Papers at Centro de Estudios Andaluces E2006/09, Centro de Estudios Andaluces.
  4. Alexander Bick & Dieter Nautz, 2008. "Inflation Thresholds and Relative Price Variability: Evidence from U.S. Cities," International Journal of Central Banking, International Journal of Central Banking, vol. 4(3), pages 61-76, September.
  5. Caraballo Pou, M. Angeles & Dabus, Carlos, 2008. "Nominal rigidities, skewness and inflation regimes," Research in Economics, Elsevier, vol. 62(1), pages 16-33, March.
  6. Liang Wang, 2011. "Inflation and Welfare with Search and Price Dispersion," Working Papers 201113, University of Hawaii at Manoa, Department of Economics.

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