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Conditional Relative Price Variance and Its Determinants: Open Economy Evidence from Germany

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  • Neumann, Manfred J M
  • von Hagen, Jurgen

Abstract

The authors present empirical tests of two hypothesis derived from an open economy version of the multimarket equilibrium model. The first hypothesis holds that the conditional relative price variance is positively related to the variance of domestic monetary and foreign nominal and real shocks. The second hypothesis claims a negative impact of an increase in conditional relative price variance on normal output. In contrast to earlier studies, the authors use direct measures of conditional relative price variance based on ARCH estimates. The authors' results show that both hypotheses are consistent with German data. Copyright 1991 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Neumann, Manfred J M & von Hagen, Jurgen, 1991. "Conditional Relative Price Variance and Its Determinants: Open Economy Evidence from Germany," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(1), pages 195-208, February.
    • Handle: RePEc:ier:iecrev:v:32:y:1991:i:1:p:195-208
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    Cited by:

    1. 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.
    2. Jürgen Hagen & Manfred Neumann, 1990. "Relative price risk in an open economy with fixed and flexible exchange rates," Open Economies Review, Springer, vol. 1(3), pages 269-289, October.
    3. Dieter Nautz & Juliane Scharff, 2012. "Inflation and relative price variability in the euro area: evidence from a panel threshold model," Applied Economics, Taylor & Francis Journals, vol. 44(4), pages 449-460, February.
    4. Backé, Peter, 2004. "Fiscal policy and inflation volatility," Working Paper Series 317, European Central Bank.
    5. Dieter Nautz & Juliane Scharff, 2005. "Inflation and Relative Price Variability in a Low Inflation Country: Empirical Evidence for Germany," German Economic Review, Verein für Socialpolitik, vol. 6(4), pages 507-523, November.

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