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On the Granger causality between median inflation and price dispersion

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  • Richard Ashley
  • Haichun Ye

Abstract

The Granger-causal relationship between the size and dispersion of fluctuations in sub-components of the US Consumer Price Index (CPI) is examined using both in-sample and out-of-sample tests and data from January 1968 to December 2008. Strong in-sample evidence is found for feedback between median inflation and price dispersion; the evidence for Granger-causation from median inflation to price dispersion remains strong in out-of-sample testing, but is less strong for Granger-causation in the opposite direction. The implications of these results for the variety of price-level determination models in the literature are discussed.

Suggested Citation

  • Richard Ashley & Haichun Ye, 2012. "On the Granger causality between median inflation and price dispersion," Applied Economics, Taylor & Francis Journals, vol. 44(32), pages 4221-4238, November.
  • Handle: RePEc:taf:applec:44:y:2012:i:32:p:4221-4238
    DOI: 10.1080/00036846.2011.587788
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    File URL: http://hdl.handle.net/10.1080/00036846.2011.587788
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    References listed on IDEAS

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    1. Richard De Abreu Lourenco & David Gruen, 1995. "Price Stickiness and Inflation," RBA Research Discussion Papers rdp9502, Reserve Bank of Australia.
    2. Richard A. Ashley & Randall J. Verbrugge., 2006. "Mis-Specification in Phillips Curve Regressions: Quantifying Frequency Dependence in This Relationship While Allowing for Feedback," Working Papers e06-11, Virginia Polytechnic Institute and State University, Department of Economics.
    3. Michael F. Bryan & Stephen G. Cecchetti & Rodney L. Wiggins II, 1997. "Efficient Inflation Estimation," NBER Working Papers 6183, National Bureau of Economic Research, Inc.
    4. Kenneth S. Rogoff & Vania Stavrakeva, 2008. "The Continuing Puzzle of Short Horizon Exchange Rate Forecasting," NBER Working Papers 14071, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Batten, Jonathan A. & Ciner, Cetin & Kosedag, Arman & Lucey, Brian M., 2017. "Is the price of gold to gold mining stocks asymmetric?," Economic Modelling, Elsevier, vol. 60(C), pages 402-407.
    2. Ye, Haichun & Ashley, Richard & Guerard, John, 2015. "Comparing the effectiveness of traditional vs. mechanized identification methods in post-sample forecasting for a macroeconomic Granger causality analysis," International Journal of Forecasting, Elsevier, vol. 31(2), pages 488-500.
    3. Richard A. Ashley & Kwok Ping Tsang, 2014. "Credible Granger-Causality Inference with Modest Sample Lengths: A Cross-Sample Validation Approach," Econometrics, MDPI, Open Access Journal, vol. 2(1), pages 1-20, March.

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