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Relative Price Variability and Inflation: Evidence from US Cities

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  • Guy Debelle
  • Owen Lamont

Abstract

We test whether the time-series positive correlation of inflation and intermarket relative price variability is also present in a cross-section of US cities. We find this correlation to be a robust empirical regularity: cities which have higher than average inflation also have higher than average relative price dispersion, ceteris paribus. This result holds for different periods of time, different classes of goods, and across different time horizons. Our results suggest that at least part of the relationship between inflation and relative price variability cannot be explained by monetary factors.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5627.

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Date of creation: Jun 1996
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Publication status: published as Journal of Political Economy Feb.1997, Vol. 105, No. 1, pp. 132-152
Handle: RePEc:nbr:nberwo:5627

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  1. Bomberger, William A & Makinen, Gail E, 1993. "Inflation and Relative Price Variability: Parks' Study Reexamined," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 25(4), pages 854-61, November.
  2. Sheshinski, Eytan & Weiss, Yoram, 1977. "Inflation and Costs of Price Adjustment," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 44(2), pages 287-303, June.
  3. Driffill, John & Mizon, Grayham E. & Ulph, Alistair, 1990. "Costs of inflation," Handbook of Monetary Economics, Elsevier, in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 2, chapter 19, pages 1013-1066 Elsevier.
  4. Parks, Richard W, 1978. "Inflation and Relative Price Variability," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 86(1), pages 79-95, February.
  5. Stanley Fischer, 1981. "Relative Shocks, Relative Price Variability, and Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(2), pages 381-442.
  6. Benabou, Roland, 1988. "Search, Price Setting and Inflation," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 55(3), pages 353-76, July.
  7. Mariano Tommasi, 1992. "Inflation and Relative Prices Evidence from Argentina," UCLA Economics Working Papers, UCLA Department of Economics 661, UCLA Department of Economics.
  8. 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.
  9. Newey, Whitney K & West, Kenneth D, 1987. "A Simple, Positive Semi-definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix," Econometrica, Econometric Society, Econometric Society, vol. 55(3), pages 703-08, May.
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  14. Barro, Robert J., 1976. "Rational expectations and the role of monetary policy," Journal of Monetary Economics, Elsevier, Elsevier, vol. 2(1), pages 1-32, January.
  15. Reinsdorf, Marshall, 1994. "New Evidence on the Relation between Inflation and Price Dispersion," American Economic Review, American Economic Association, American Economic Association, vol. 84(3), pages 720-31, June.
  16. Olivier Jean Blanchard & Lawrence F. Katz, 1992. "Regional Evolutions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(1), pages 1-76.
  17. Van Hoomissen, Theresa, 1988. "Price Dispersion and Inflation: Evidence from Israel," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 96(6), pages 1303-14, December.
  18. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, Econometric Society, vol. 48(4), pages 817-38, May.
  19. Richard De Abreu Lourenco & David Gruen, 1995. "Price Stickiness and Inflation," RBA Research Discussion Papers, Reserve Bank of Australia rdp9502, Reserve Bank of Australia.
  20. Vining, Daniel R, Jr & Elwertowski, Thomas C, 1976. "The Relationship between Relative Prices and the General Price Level," American Economic Review, American Economic Association, American Economic Association, vol. 66(4), pages 699-708, September.
  21. 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, University of Chicago Press, vol. 100(2), pages 349-89, April.
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  1. Inflación y poder de mercado
    by Luciano Cohan (Elemaco) in Economista Serial Crónico on 2011-01-24 21:09:00
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