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Determinants of Relative Price Variability during a Recession: Evidence from Canada at the Time of the Great Depression

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Author Info

  • David Fielding

    ()
    (Department of Economics, University of Otago)

  • Chris Hajzler

    ()
    (Department of Economics, University of Otago)

  • Jim MacGee

    ()
    (Department of Economics, University of Western Ontario)

Abstract

Most studies find that relative price variability (RPV) is a U-shaped or V-shaped function of anticipated inflation, and a V-shaped function of unanticipated inflation. One exception is Reinsdorf (1994), who finds that RPV in the United States during the 1980s recession was monotonically decreasing in unanticipated inflation. We suggest a reason for this difference, and test our conjecture using data from inter-war Canada. Our results indicate that in recessionary conditions a positive inflation shock does reduce RPV. However, this reduction is unlikely to correspond to higher consumer utility; this has implications for the conduct of monetary policy during a recession.

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File URL: http://www.business.otago.ac.nz/econ/research/discussionpapers/DP_1107.pdf
File Function: This version, 2011
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Bibliographic Info

Paper provided by University of Otago, Department of Economics in its series Working Papers with number 1107.

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Length: 49 pages
Date of creation: Aug 2011
Date of revision: Aug 2011
Handle: RePEc:otg:wpaper:1107

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Keywords: Relative price variability; Inflation; Canada; Great Depression;

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Cited by:
  1. David Fielding & Chris Hajzler, 2013. "Comment on Relative Price Variability and Inflation in Reinganum's Consumer Search Model," Working Papers 1305, University of Otago, Department of Economics, revised Mar 2013.

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