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Money and the Dispersion of Relative Prices

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Author Info
Zvi Hercowitz

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Abstract

A price dispersion equation is tested with data from the German hyper-inflation. The equation is derived from a version of Lucas' (1973) and Barro's (1976) partial information-localized market models. In this extension, different excess demand elasticities across commodities imply a testable dispersion equation, in which the explanatory variable is the magnitude of the unperceived money growth. The testing of this hypothesis requires two preliminary steps. First, a price dispersion series is computed using an interesting set of data. It consists of monthly average wholesale prices of 68 commodities ranging from foods to metals, for the period of January, 1921 to July, 1923. The next step is the delicate one of measuring unperceived money growth. This estimation implies the postulation of an available information set and also a function relating the variables in this set to money creation. The function used was based on considerations related to government demand for revenue. The model receives support from the empirical analysis although it is evident that unincluded variables have important effects on price dispersion.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0431.

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Date of creation: Jan 1980
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Handle: RePEc:nbr:nberwo:0431

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  1. Günter W. Beck & Axel A. Weber, 2005. "Inflation Rate Dispersion and Convergence in Monetary and Economic Unions: Lessons for the ECB," CFS Working Paper Series 2005/31, Center for Financial Studies. [Downloadable!]
  2. André Binette & Sylvain Martel, 2005. "Inflation and Relative Price Dispersion in Canada: An Empirical Assessment," Working Papers 05-28, Bank of Canada. [Downloadable!]
  3. Ioanna Reziti, 2005. "The Relationship Between Macroeconomic Variables and Relative Price Variability in Greek Agriculture," International Advances in Economic Research, Springer, vol. 11(1), pages 111-119, March. [Downloadable!] (restricted)
  4. Robert J. Barro & David B. Gordon, 1983. "A Positive Theory of Monetary Policy in a Natural-Rate Model," NBER Working Papers 0807, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Anindya BANERJEE & Paul MIZEN & Bill RUSSELL, 2002. "The Long-Run Relationship among Relative Price Variability, Inflation and the Markup," Economics Working Papers ECO2002/01, European University Institute. [Downloadable!]
  6. Hande Kucuk & Burc Tuger, 2004. "Relative Price Variability : The Case Of Turkey 1994-2002," Working Papers 0402, Research and Monetary Policy Department, Central Bank of the Republic of Turkey. [Downloadable!]
  7. Roland Benabou & Robert Gertner, 1991. "The Informativeness of Prices: Search With Learning and Cost Uncertainty," NBER Working Papers 3833, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. John A. James, 1985. "Shifts in the Nineteenth-Century Phillips Curve Relationship," NBER Working Papers 1587, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. María Ángeles Caraballo & Carlos Dabús., 2008. "The Determinants of Relative Price Variability: Further Evidence from Argentina," Cuadernos de Economía (Latin American Journal of Economics), Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 45(132), pages 235-255. [Downloadable!]
  10. Fernando Merino, 2000. "Price-Adjustment Costs and Adjustment Frequency: An Analysis with Individual Data," Econometric Society World Congress 2000 Contributed Papers 1712, Econometric Society. [Downloadable!]
  11. Steven G. Allen, 1989. "Relative Wage Variability in the United States, 1860-1983," NBER Working Papers 2221, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  12. Randal J. Verbrugge, 1998. "Cross-Sectional and Longitudinal Inflation Asymmetries," Macroeconomics 9809018, EconWPA. [Downloadable!]
  13. Zvi Hercowitz, 1980. "Money and Price Dispersion in the United States," NBER Working Papers 0433, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  14. Chaim Fershtman & Arthur Fishman, 1989. "Search and Price Dispersion in an Inflationary Economy," Discussion Papers 843, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
  15. David Parsley Helen Popper, 2002. "Inflation And Price Dispersion In Equity Markets And In Goods And Services Markets," Macroeconomics 0211004, EconWPA. [Downloadable!]
  16. 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. [Downloadable!]
  17. Pier-Giorgo Ardeni & Gordon C. Rausser, 1992. "Alternative Subsidy Reduction Paths: Commodity, Fiscal, and Monetary Policy Linkages," Center for Agricultural and Rural Development (CARD) Publications 90-gatt10, Center for Agricultural and Rural Development (CARD) at Iowa State University. [Downloadable!]
  18. David FIELDING & Paul MIZEN, 2001. "The Relationship between Price Dispersion and Inflation: A Reassessment," Economics Working Papers ECO2001/10, European University Institute. [Downloadable!]
  19. Morisset, Jacques & Revoredo, Cesar, 1995. "In search of price rigidities : recent sector evidence from Argentina," Policy Research Working Paper Series 1558, The World Bank. [Downloadable!]
  20. Axel A. Weber & Günter W. Beck, 2005. "Price Stability, Inflation Convergence and Diversity in EMU: Does One Size Fit All?," CFS Working Paper Series 2005/30, Center for Financial Studies. [Downloadable!]
  21. Michael Dotsey & Robert G. King, 1984. "Informational implications of interest rate rules," Working Paper 84-08, Federal Reserve Bank of Richmond. [Downloadable!]
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