Determinants of Relative Price Variability during a Recession: Evidence from Canada at the Time of the Great Depression
AbstractMost 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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Bibliographic InfoPaper provided by University of Otago, Department of Economics in its series Working Papers with number 1107.
Length: 49 pages
Date of creation: Aug 2011
Date of revision: Aug 2011
Relative price variability; Inflation; Canada; Great Depression;
Find related papers by JEL classification:
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- N1 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations
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- 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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