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Inflation and the Skewness of the Distribution of Relative Price Changes: Empirical Evidence for Germany

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  • Jörg Döpke
  • Christian Pierdzioch

Abstract

The present paper uses German annual data covering the period 1969-2000 to present evidence on the link between aggregate inflation and the higher-order moments of the distribution of relative price changes. Our empirical findings confirm predictions of contributions to the theoretical literature suggesting that skewness of this distribution is an important explanatory variable for the inflation rate. Further, the skewness measure also helps to explain shifts in the Phillips curve. Moreover, a structural vector autoregression reveals that the skewness measure helps to explain the variations of real output and might, therefore, serve as a measure of supply side shocks hitting the economy. Der Aufsatz untersucht auf der Basis deutscher Jahresdaten für den Zeitraum 1969-2000 den Zusammenhang zwischen der gesamtwirtschaftlichen Inflationsrate und den höheren Momenten der Verteilung der relativen Preisveränderungen. Unsere empirischen Ergebnisse bestätigen die Vorhersagen theoretischer Ansätze, nach denen die Schiefe der Verteilung relativer Preisveränderungen eine erklärende Variable für die Inflationsentwicklung darstellt. Die Schiefe erlaubt es, Verschiebungen der Phillipskurve zu erklären. Empirische Untersuchungen unter Zuhilfenahme einer strukturellen Vektorautoregression zeigen, dass die Variation des Outputs teilweise mit Hilfe dieser Variablen erklärt werden kann. Die Schiefe relativer Preisveränderungen ist somit ein geeignetes Maß für Angebotsschocks, von denen die Volkswirtschaft getroffen wird.

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File URL: https://www.ifw-members.ifw-kiel.de/publications/inflation-and-the-skewness-of-the-distribution-of-relative-price-changes-empirical-evidence-for-germany/kap1059.pdf
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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1059.

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Length: 31 pages
Date of creation: Jul 2001
Date of revision:
Handle: RePEc:kie:kieliw:1059

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Keywords: inflation; relative prices; distribution of relative prices changes;

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References

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  1. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Publishing House "SINERGIA PRESS", Publishing House "SINERGIA PRESS", vol. 33(1), pages 125-132.
  2. Funke, Michael, 1997. "How important are demand and supply shocks in explaining German business cycles?: New evidence on an old debate," Economic Modelling, Elsevier, Elsevier, vol. 14(1), pages 11-37, January.
  3. Robert J. Hodrick & Edward Prescott, 1981. "Post-War U.S. Business Cycles: An Empirical Investigation," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 451, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. Michael F. Bryan & Stephen G. Cecchetti, 1999. "Inflation And The Distribution Of Price Changes," The Review of Economics and Statistics, MIT Press, vol. 81(2), pages 188-196, May.
  5. Ball, L. & Mankiw, G.H., 1992. "Relative-Price Change as Aggregate Supply Shocks," Harvard Institute of Economic Research Working Papers, Harvard - Institute of Economic Research 1609, Harvard - Institute of Economic Research.
  6. Ratfai, Attila, 2000. "Relative price skewness and inflation: a structural VAR framework," Discussion Paper Series In Economics And Econometrics 0028, Economics Division, School of Social Sciences, University of Southampton.
  7. Wolfgang Franz, 2001. "Neues von der NAIRU?," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 221(3), pages 256-284.
  8. Holly, Sean, 1997. "Relative Price Dispersion and the Rate of Inflation: The Evidence from Japan," Journal of Economic Integration, Center for Economic Integration, Sejong University, Center for Economic Integration, Sejong University, vol. 12, pages 206-226.
  9. Fischer, Stanley, 1982. "Relative price variability and inflation in the United States and Germany," European Economic Review, Elsevier, Elsevier, vol. 18(2), pages 171-196.
  10. Fischer, Stanley, 1982. "Relative price variability and inflation in the United States and Germany," European Economic Review, Elsevier, Elsevier, vol. 18(1), pages 171-196.
  11. Richard De Abreu Lourenco & David Gruen, 1995. "Price Stickiness and Inflation," RBA Research Discussion Papers, Reserve Bank of Australia rdp9502, Reserve Bank of Australia.
  12. Robert A. Amano & R. Tiff Macklem, 1997. "Menu Costs, Relative Prices, and Inflation: Evidence for Canada," Working Papers, Bank of Canada 97-14, Bank of Canada.
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Cited by:
  1. Christopher Martin & A. Nazif Çatik & A. Özlem Onder, 2011. "Relative price variability and the Phillips Curve: evidence from Turkey," Journal of Economic Studies, Emerald Group Publishing, Emerald Group Publishing, vol. 38(5), pages 546-561, November.
  2. Caraballo Pou, M. Angeles & Dabus, Carlos, 2008. "Nominal rigidities, skewness and inflation regimes," Research in Economics, Elsevier, Elsevier, vol. 62(1), pages 16-33, March.
  3. María Ángeles Caraballo & Carlos Usabiaga, 2006. "The Relevance of Supply Shocks for Inflation: The Spanish Case," Economic Working Papers at Centro de Estudios Andaluces E2006/17, Centro de Estudios Andaluces.
  4. Mª Ángeles Caraballo Pou & Carlos Dabús, 2005. "Nominal rigidities, relative prices and skewness," Economic Working Papers at Centro de Estudios Andaluces E2005/17, Centro de Estudios Andaluces.
  5. Maria A. Caraballo & Carlos Usabiaga, 2006. "Inflation and Supply Shocks in Spain: A Regional Approach," ERSA conference papers ersa06p335, European Regional Science Association.
  6. Carlos Usabiaga & María Ángeles Caraballo, 2004. "Inflation and Nominal Rigidities in Spanish Regions: The Ball and Mankiw Approach," ERSA conference papers ersa04p12, European Regional Science Association.

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