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Aggregate Price Changes and Dispersion: A Comparison of the Equity and Goods and Services Markets

Author

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  • Parsley David C.

    (OGSM, Vanderbilt University)

  • Popper Helen A.

    (Department of Economics, Santa Clara University)

Abstract

Many existing studies have found a correlation between inflation and price dispersion in goods markets. In this paper, we document that a similar correlation can be found in equity markets. We estimate the correlation between overall price changes and dispersion in the NYSE and in the NASDAQ. Using quarterly data from 1975 to 1999, we compare the stock market correlations with those of goods markets. We find striking correlations in both sets of markets. The most prominent explanations of the goods market correlation (such as menu costs) cannot plausibly apply to equity markets. Thus, our findings indicate that the correlation appears to be more widespread than can be accounted for by the usual explanations.

Suggested Citation

  • Parsley David C. & Popper Helen A., 2004. "Aggregate Price Changes and Dispersion: A Comparison of the Equity and Goods and Services Markets," The B.E. Journal of Macroeconomics, De Gruyter, vol. 4(1), pages 1-30, January.
    • Handle: RePEc:bpj:bejmac:v:contributions.4:y:2004:i:1:n:1
    DOI: 10.2202/1534-6005.1075
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    Citations

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    Cited by:

    1. Robert E. Krainer, 2014. "Financial Aspects of Business Cycles: An Analysis of Balance Sheet Adjustments of U.S. Nonfinancial Enterprises over the Twentieth Century," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(2-3), pages 371-407, March.
    2. Krainer, Robert E., 2014. "Monetary policy and bank lending in the Euro area: Is there a stock market channel or an interest rate channel?," Journal of International Money and Finance, Elsevier, vol. 49(PB), pages 283-298.
    3. Choi, Chi-Young & Matsubara, Kiyoshi, 2007. "Heterogeneity in the persistence of relative prices: What do the Japanese cities tell us?," Journal of the Japanese and International Economies, Elsevier, vol. 21(2), pages 260-286, June.

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