Friedman's Hypothesis and Cross-Regional Inflation Dispersion
This study shows that higher inflation is associated with increased inflation dispersion across U.S. cities and regions. Regression analysis indicates that cross-regional inflation variability is positively related to both inflation and inflation expectations based on consumer price inflation for 18 U.S. cities. Similar results are obtained after excluding five of the 18 cities that may be disproportionately impacted by energy shocks. In addition, cointegration analysis shows greater cross-regional price dispersion over time during the higher inflation period of 1978-1987 than during 1988-1997. These findings suggest that high inflation is associated with greater uncertainty for businesses and policy makers.
References listed on IDEAS
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- 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.
- Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
- Friedman, Milton, 1977. "Nobel Lecture: Inflation and Unemployment," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 451-72, June.
- Debelle, Guy & Lamont, Owen, 1997.
"Relative Price Variability and Inflation: Evidence from U.S. Cities,"
Journal of Political Economy,
University of Chicago Press, vol. 105(1), pages 132-52, February.
- Guy Debelle & Owen Lamont, 1996. "Relative Price Variability and Inflation: Evidence from US Cities," NBER Working Papers 5627, National Bureau of Economic Research, Inc.
- Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
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