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Money and Price Dispersion in the United States

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Author Info
Zvi Hercowitz

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Abstract

This paper reports an empirical test of a price dispersion equation, using data on the U.S. after World War II. The equation, derived elsewhere from aversion of the partial information-localized market models, relates price dispersion to the magnitude of changes in the aggregate disturbances. In order to test the model a series on price dispersion is computed using annual wholesale price indexes for the period 1948-76. The data on money shocks are the unanticipated money growth series estimated by Barro. The tests also include a measure of aggregate-real disturbances. From the theoretical point of view the results are negative. They reject the hypothesis that unexpected money shocks, as measured by Barro, affect price dispersion in the way predicted by the model. In a previous paper, a similar model was tested with data from the German hyperinflation and found supported to a considerable extent. The difference in the results may be related to the extreme magnitude of the monetary disturbances during that period, and to the apparently important effect of unincluded relative disturbances in the United States.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0433.

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Date of creation: Jan 1980
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Handle: RePEc:nbr:nberwo:0433

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Hercowitz, Zvi, 1981. "Money and the Dispersion of Relative Prices," Journal of Political Economy, University of Chicago Press, vol. 89(2), pages 328-56, April. [Downloadable!] (restricted)
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  2. Cukierman, Alex & Wachtel, Paul, 1982. "Relative Price Variability and Nonuniform Inflationary Expectations," Journal of Political Economy, University of Chicago Press, vol. 90(1), pages 146-57, February. [Downloadable!] (restricted)
  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. [Downloadable!] (restricted)
  4. Lucas, Robert E, Jr, 1973. "Some International Evidence on Output-Inflation Tradeoffs," American Economic Review, American Economic Association, vol. 63(3), pages 326-34, June.
  5. 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. [Downloadable!] (restricted)
  6. Barro, Robert J., 1976. "Rational expectations and the role of monetary policy," Journal of Monetary Economics, Elsevier, vol. 2(1), pages 1-32, January. [Downloadable!] (restricted)
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  1. Nathan S. Balke & Mark A. Wynne, 2003. "The relative price effects of monetary shocks," Working Papers 03-06, Federal Reserve Bank of Dallas. [Downloadable!]
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  2. 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)
  3. S. Rao Aiyagari, 1990. "Deflating the case for zero inflation," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 2-11. [Downloadable!]
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