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Relative Price Variability and Inflation: Evidence from US Cities

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Guy Debelle
Owen Lamont

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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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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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Handle: RePEc:nbr:nberwo:5627

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E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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  1. Mariano Tommasi, 1992. "Inflation and Relative Prices Evidence from Argentina," UCLA Economics Working Papers 661, UCLA Department of Economics. [Downloadable!]
  2. Driffill, John & Mizon, Grayham E. & Ulph, Alistair, 1990. "Costs of inflation," Handbook of Monetary Economics, in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 2, chapter 19, pages 1013-1066 Elsevier. [Downloadable!] (restricted)
    Other versions:
  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. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July. [Downloadable!] (restricted)
  5. Bomberger, William A & Makinen, Gail E, 1993. "Inflation and Relative Price Variability: Parks' Study Reexamined," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(4), pages 854-61, November. [Downloadable!] (restricted)
  6. Stanley Fischer, 1981. "Relative Shocks, Relative Price Variability, and Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(1981-2), pages 381-442. [Downloadable!]
  7. 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.
  8. Weiss, Y., 1992. "Inflation and price Adjustment : A Susvey of Findings from Micro-Data," Papers 3-92, Tel Aviv - the Sackler Institute of Economic Studies.
  9. 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. [Downloadable!] (restricted)
  10. Olivier Jean Blanchard & Lawrence F. Katz, 1992. "Regional Evolutions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(1992-1), pages 1-76. [Downloadable!]
  11. Whitney K. Newey & Kenneth D. West, 1986. "A Simple, Positive Semi-Definite, Heteroskedasticity and AutocorrelationConsistent Covariance Matrix," NBER Technical Working Papers 0055, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  12. Reinsdorf, Marshall, 1994. "New Evidence on the Relation between Inflation and Price Dispersion," American Economic Review, American Economic Association, vol. 84(3), pages 720-31, June. [Downloadable!] (restricted)
  13. Sheshinski, Eytan & Weiss, Yoram, 1977. "Inflation and Costs of Price Adjustment," Review of Economic Studies, Blackwell Publishing, vol. 44(2), pages 287-303, June. [Downloadable!] (restricted)
  14. Fischer, Stanley, 1982. "Relative price variability and inflation in the United States and Germany," European Economic Review, Elsevier, vol. 18(1), pages 171-196. [Downloadable!] (restricted)
  15. Van Hoomissen, Theresa, 1988. "Price Dispersion and Inflation: Evidence from Israel," Journal of Political Economy, University of Chicago Press, vol. 96(6), pages 1303-14, December. [Downloadable!] (restricted)
  16. Benabou, Roland, 1988. "Search, Price Setting and Inflation," Review of Economic Studies, Blackwell Publishing, vol. 55(3), pages 353-76, July. [Downloadable!] (restricted)
  17. 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)
  18. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May. [Downloadable!] (restricted)
  19. 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)
  20. Fischer, Stanley, 1982. "Relative price variability and inflation in the United States and Germany," European Economic Review, Elsevier, vol. 18(2), pages 171-196. [Downloadable!] (restricted)
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