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Relative Price Dispersion, Aggregate Price Movement, and the Natural Rate of Unemployment

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  • Stockton, David J

Abstract

This paper develops a model of relative price stickiness and examines its implications for the relationship between relative prices, inflation, and the natu ral rate of unemployment. Estimation of the model demonstrates that c ausality in the relationship between relative and aggregate prices ru ns in both directions. However, microeconomic disturbances have been the primary source of relative price change variance over the postwar period, and these micro disturbances have exerted a strong effect on inflation in the short run. It also is shown that micro relative pri ce change dispersion has had a significant influence on the natural r ate of unemployment. Copyright 1988 by Oxford University Press.

Suggested Citation

  • Stockton, David J, 1988. "Relative Price Dispersion, Aggregate Price Movement, and the Natural Rate of Unemployment," Economic Inquiry, Western Economic Association International, vol. 26(1), pages 1-22, January.
  • Handle: RePEc:oup:ecinqu:v:26:y:1988:i:1:p:1-22
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    Cited by:

    1. V. H. Smith & J. S. Lapp, 1993. "Relative Price Variability Among Agricultural Commodities And Macroeconomic Instability In The United Kingdom," Journal of Agricultural Economics, Wiley Blackwell, vol. 44(2), pages 272-283.
    2. Jessie Handbury & Tsutomu Watanabe & David E. Weinstein, 2013. "How Much Do Official Price Indexes Tell Us about Inflation?," NBER Working Papers 19504, National Bureau of Economic Research, Inc.
    3. Ioanna Reziti, 2005. "The Relationship Between Macroeconomic Variables and Relative Price Variability in Greek Agriculture," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 11(1), pages 111-119, February.
    4. Hajime Tomura, 2016. "Investment Horizon and Repo in the Over‐the‐Counter Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(1), pages 145-164, February.

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