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Nonlinear Impact of Inflation on Relative Price Variability

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  • Mustafa Caglayan

    ()
    (University of Liverpool)

  • Alpay Filiztekin

    ()
    (Sabanci University)

Abstract

In this paper we investigate the link between inflation and relative price variability, and the impact of structural changes in the behavior of inflation using a half-a-century long disaggregated data. Employing panel data techniques to control for aggregate shocks, we show that: 1) the effect of inflation is non-neutral: relative price variability has increased in inflationary as well as deflationary periods, 2) the association between inflation and relative price variability is highly nonlinear 3) there is strong support for menu cost models, but none for signal extraction models.

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Bibliographic Info

Paper provided by University of Liverpool Management School in its series Research Papers with number 2001_02.

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Length: 11 pages
Date of creation: 2001
Date of revision: 01 Oct 2002
Publication status: forthcoming, Economics Letters
Handle: RePEc:liv:livedp:2001_02

Note: This paper was previously circulated as "Relative Price Variability and Inflation: New evidence from Turkey"
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Postal: Management School University of Liverpool, Chatham Street, Liverpool, L69 7ZH, Great Britain
Phone: +44(0)151 795 3108
Fax: +44(0)151 795 3004
Web page: http://www.liv.ac.uk/management/
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Keywords: Inflation; Price variability; Nonlinearity; Panel data.;

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References

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  1. 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.
  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. Parks, Richard W, 1978. "Inflation and Relative Price Variability," Journal of Political Economy, University of Chicago Press, vol. 86(1), pages 79-95, February.
  4. 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.
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Cited by:
  1. Erdem Başçi & Syed F. Mahmud & Eray M. Yucel, 2007. "Money and Productive Efficiency: Evidence from a High-Inflation Country," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 43(1), pages 64-73, February.
  2. Muhammad Akmal, 2012. "The Relationship between Inflation and Relative Price Variability in Pakistan," Working Papers id:4734, eSocialSciences.
  3. Mustafa Caglayan & Alpay Filiztekin & Michael T. Rauh, 2006. "Inflation, Price Dispersion, and Market Structure," Working Papers 2006-03, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  4. María Ángeles Caraballo & Carlos Dabús., 2008. "The Determinants of Relative Price Variability: Further Evidence from Argentina," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 45(132), pages 235-255.
  5. Scharff, Juliane & Nautz, Dieter, 2006. "Inflation and relative price variability in the euro area: evidence from a panel threshold model," Discussion Paper Series 1: Economic Studies 2006,14, Deutsche Bundesbank, Research Centre.
  6. Saygın Şahinöz & Bedriye Saraçoğlu, 2011. "How do firms adjust their prices in Turkey? Micro-level evidence," Empirical Economics, Springer, vol. 40(3), pages 601-621, May.
  7. 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.
  8. 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.
  9. 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.
  10. Chi-Young Choi, 2010. "Reconsidering the Relationship between Inflation and Relative Price Variability," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(5), pages 769-798, 08.
  11. Mustafa Caglayan & Alpay Filiztekin & Michael T. Rauh, 2004. "Market Structure, Inflation, and Price Dispersion," Discussion Papers in Economics 04/2, Department of Economics, University of Leicester, revised Jun 2004.
  12. 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.

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