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Inflation, price dispersion, and market structure

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  • Caglayan, Mustafa
  • Filiztekin, Alpay
  • Rauh, Michael T.

Abstract

In this paper, we use a novel data set containing prices from bazaars, convenience stores, and supermarkets in Istanbul to re-examine the relationship between price dispersion and inflation. Although existing evidence is mixed, we find positive and significant relationships between dispersion, on the one hand, and lagged dispersion and unexpected product-specific inflation on the other. We also find evidence that dispersion is initially decreasing in anticipated aggregate inflation but is eventually increasing. Finally, average price duration and dispersion are lowest in the bazaar. This is intuitive, since menu and search costs should be minimal in that market structure.

Suggested Citation

  • Caglayan, Mustafa & Filiztekin, Alpay & Rauh, Michael T., 2008. "Inflation, price dispersion, and market structure," European Economic Review, Elsevier, vol. 52(7), pages 1187-1208, October.
  • Handle: RePEc:eee:eecrev:v:52:y:2008:i:7:p:1187-1208
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    Cited by:

    1. Baglan, Deniz & Ege Yazgan, M. & Yilmazkuday, Hakan, 2016. "Relative price variability and inflation: New evidence," Journal of Macroeconomics, Elsevier, vol. 48(C), pages 263-282.
    2. Becker, Sascha S. & Nautz, Dieter, 2012. "Inflation, price dispersion and market integration through the lens of a monetary search model," European Economic Review, Elsevier, vol. 56(3), pages 624-634.
    3. Jan Babecký & Fabrizio Coricelli & Roman Horváth, 2009. "Assessing Inflation Persistence: Micro Evidence on an Inflation Targeting Economy," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 59(2), pages 102-127, June.
    4. repec:bla:ecinqu:v:55:y:2017:i:4:p:1648-1670 is not listed on IDEAS
    5. Mustafa Caglayan & Ozge Kandemir & Kostas Mouratidis, 2012. "The Impact of Inflation Uncertainty on Economic Growth: A MRS-IV Approach," Working Papers 2012025, The University of Sheffield, Department of Economics.
    6. Fabrizio Coricelli & Roman Horváth, 2010. "Price setting and market structure: an empirical analysis of micro data in Slovakia," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 31(2-3), pages 209-233.
    7. Saghir Pervaiz Ghauri & Rizwan Raheem Ahmed & Jolita Vveinhardt & Dalia Streimikiene, 2017. "Estimation of Relationship between Inflation and Relative Price Variability: Granger Causality and ARDL Modelling Approach," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 19(44), pages 249-249, February.
    8. Katarina Lukacsy, 2009. "Price Rigidity in Slovakia: Some Facts and Causes," Research in Economics and Business: Central and Eastern Europe, Tallinn School of Economics and Business Administration, Tallinn University of Technology, vol. 1(2).
    9. Fabrizio Coricelli & Roman Horvath, 2008. "Price Setting And Market Structure: An Empirical Analysis Of Micro Data," William Davidson Institute Working Papers Series wp938, William Davidson Institute at the University of Michigan.
    10. Caglayan, Mustafa & Filiztekin, Alpay, 2012. "The law of one price and the role of market structure," MPRA Paper 36975, University Library of Munich, Germany.
    11. Caglayan, Mustafa & Filiztekin, Alpay, 2015. "Price dynamics and market segmentation," Economics Letters, Elsevier, vol. 134(C), pages 94-97.
    12. Mustafa Caglayan & Ozge Kandemir & Kostas Mouratidis, 2011. "Real effects of inflation uncertainty in the US," Working Papers 2011002, The University of Sheffield, Department of Economics, revised Feb 2015.
    13. Lucas Herrenbrueck, 2015. "An Open-Economy Model with Money, Endogenous Search, and Heterogeneous Firms," Discussion Papers dp15-06, Department of Economics, Simon Fraser University.
    14. David Fielding & Christopher Hajzler & James MacGee, 2017. "Price-Level Dispersion versus Inflation-Rate Dispersion: Evidence from Three Countries," Staff Working Papers 17-3, Bank of Canada.
    15. Liang Wang, 2011. "Inflation and Welfare with Search and Price Dispersion," Working Papers 201113, University of Hawaii at Manoa, Department of Economics.
    16. Castellari, Elena & Moro, Daniele & Platoni, Silvia & Sckokai, Paolo, 2015. "Price dispersion and inflation rates: evidence from scanner data," 2015 Fourth Congress, June 11-12, 2015, Ancona, Italy 207268, Italian Association of Agricultural and Applied Economics (AIEAA).
    17. M. Utku Ozmen & Orhun Sevinc, 2011. "Price Rigidity In Turkey : Evidence From Micro Data," Working Papers 1125, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    18. Sascha S. Becker, 2011. "What Drives the Relationship Between Inflation and Price Dispersion? Market Power vs. Price Rigidity," SFB 649 Discussion Papers SFB649DP2011-019, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    19. Wang, Liang, 2016. "Endogenous search, price dispersion, and welfare," Journal of Economic Dynamics and Control, Elsevier, vol. 73(C), pages 94-117.

    More about this item

    Keywords

    Inflation Market structure Menu cost models Micro panel data Price dispersion Search Sticky prices;

    JEL classification:

    • L0 - Industrial Organization - - General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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