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Inflation, Price Dispersion, and Market Structure

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  • Mustafa Caglayan

    (Department of Economics, University of Glasgow)

  • Alpay Filiztekin

    (Faculty of Arts and Social Sciences, Sabanci University)

  • Michael T. Rauh

    (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)

Abstract

In this paper, we use a unique micro-level data set from Istanbul to investigate the empirical relationship between inflation and price dispersion. In particular, our data set includes price observations from three distinct store types: bakkals (convenience stores), pazars (bazaars), and supermarkets. Our findings indicate that pazars exhibit the least amount of price dispersion on average, which is consistent with the fact that menu and search costs are very low in the pazar and that such sellers seem to have very little market power. Moreover, we find that several of the basic inflation-dispersion channels identified by the theoretical literature seem to be operating in our data.

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File URL: http://www.bus.indiana.edu/riharbau/RePEc/iuk/wpaper/bepp2006-03-caglayan-filiztekin-rauh.pdf
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Bibliographic Info

Paper provided by Indiana University, Kelley School of Business, Department of Business Economics and Public Policy in its series Working Papers with number 2006-03.

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Date of creation: Jan 2006
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Handle: RePEc:iuk:wpaper:2006-03

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Keywords: inflation; market structure; menu cost models; micro panel data; price dispersion;

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References

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  1. Maćkowiak, Bartosz & Wiederholt, Mirko, 2009. "Optimal sticky prices under rational inattention," Working Paper Series 1009, European Central Bank.
  2. Dana, J.D., 1991. "Learning in an Equilibrium Search Model," Papers 37, Stanford - Institute for Thoretical Economics.
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  10. 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.
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Citations

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Cited by:
  1. M. Utku Ozmen & Orhun Sevinc, 2011. "Price Rigidity In Turkey : Evidence From Micro Data," Working Papers 1125, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  2. Sascha S. Becker & Dieter Nautz, 2010. "Inflation, Price Dispersion and Market Integration through the Lens of a Monetary Search Model," SFB 649 Discussion Papers SFB649DP2010-058, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  3. Fabricio Coricelli & Roman Horváth, 2008. "Price Setting and Market Structure: An Empirical Analysis of Micro Data," Working Papers IES 2008/23, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Sep 2008.
  4. Fabrizio Coricelli & Roman Horváth, 2010. "Price setting and market structure: an empirical analysis of micro data in Slovakia," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 31(2-3), pages 209-233.
  5. Jan Babecký & Fabrizio Coricelli & Roman Horváth, 2009. "Assessing Inflation Persistence: Micro Evidence on an Inflation Targeting Economy," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 59(2), pages 102-127, June.
  6. Caglayan, Mustafa & Filiztekin, Alpay, 2012. "The law of one price and the role of market structure," MPRA Paper 36975, University Library of Munich, Germany.
  7. 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.
  8. 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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