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Inflation and relative price variability in the euro area: evidence from a panel threshold model

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  • Scharff, Juliane
  • Nautz, Dieter

Abstract

In recent macroeconomic theory, relative price variability (RPV) generates the central distortions of inflation. This paper provides first evidence on the empirical relation between inflation and RPV in the euro area focusing on threshold effects of inflation. We find that expected inflation significantly increases RPV if inflation is either very low (below -1.38% p.a.) or very high (above 5.94% p.a.). In the intermediate regime, however, expected inflation has no distorting effects which supports price stability as an outcome of optimal monetary policy. --

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Bibliographic Info

Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2006,14.

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Date of creation: 2006
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Handle: RePEc:zbw:bubdp1:4250

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Keywords: Inflation; Relative Price Variability; Panel Threshold Models;

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Cited by:
  1. Bick, Alexander, 2010. "Threshold effects of inflation on economic growth in developing countries," Economics Letters, Elsevier, vol. 108(2), pages 126-129, August.
  2. Rather, Sartaj Rasool & Durai, S. Raja Sethu & Ramachandran, M., 2014. "Inflation and relative price variability: Evidence for India," Journal of Asian Economics, Elsevier, vol. 30(C), pages 32-41.
  3. María Ángeles Caraballo & Carlos Dabús., 2008. "The Determinants of Relative Price Variability: Further Evidence from Argentina," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 45(132), pages 235-255.

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