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A Non-linear "Inflation-Relative Prices Variability" Relationship: Evidence from Latin America

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Author Info
Mª Ángeles Caraballo Pou () (Universidad de Sevilla)
Carlos Dabús () (CONICET y Universidad Nacional del Sur)
Diego Caramuta () (Universidad Nacional del Sur)

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Abstract

This paper presents evidence on a non-linear "inflation-relative prices variability" relationship in three Latin American countries with very high inflation experiences: Argentina, Brazil and Peru. More precisely, and in contrast to results found in previous literature for similar countries, we find a non-concave relation at higher inflation regimes, i.e. when inflation rate surpasses certain threshold. This non-concavity is mainly explained by the unexpected component of inflation, which suggests that the uncertainty associated to very high inflation periods can be quite relevant to understand the non neutrality of inflation in extreme price instability.

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Publisher Info
Paper provided by Centro de Estudios Andaluces in its series Economic Working Papers at Centro de Estudios Andaluces with number E2006/09.

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Length: 21 pages
Date of creation: 2006
Date of revision:
Handle: RePEc:cea:doctra:e2006_09

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Related research
Keywords: Non-linearities; inflation regimes; relative prices variability; unexpected inflation.;

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Find related papers by JEL classification:
E0 - Macroeconomics and Monetary Economics - - General
E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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References listed on IDEAS
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    Other versions:
  3. Mariano Tommasi, 1992. "Inflation and Relative Prices Evidence from Argentina," UCLA Economics Working Papers 661, UCLA Department of Economics. [Downloadable!]
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    Other versions:
  16. Dieter Nautz & Juliane Scharff, 2005. "Inflation and Relative Price Variability in a Low Inflation Country: Empirical Evidence for Germany," German Economic Review, Blackwell Publishing, vol. 6(4), pages 507-523, November. [Downloadable!] (restricted)
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  22. 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. [Downloadable!] (restricted)
  23. 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. [Downloadable!] (restricted)
  24. María Ángeles Caraballo & Carlos Dabús & Carlos Usabiaga, 2004. "Relative Prices and Inflation: New Evidence from Different Inflationary Contexts," Economic Working Papers at Centro de Estudios Andaluces E2004/71, Centro de Estudios Andaluces. [Downloadable!]
    Other versions:
  25. Michael Aarstol, 1999. "Inflation, Inflation Uncertainty, and Relative Price Variability," Southern Economic Journal, Southern Economic Association, vol. 66(2), pages 414-423, October.
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