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The Effects Of General Inflation And Idiosyncratic Cost Shocks On Within-Commodity Price Dispersion: Evidence From Microdata


  • Joe Beaulieu
  • Joe Mattey


This study investigates the dispersion of price levels within highly disaggregated markets by examining plant-level product records from the U.S. Census of Manufactures. The paper estimates the effects of inflation on price dispersion through cross-sectional variation in the drift rate of average input costs within a market, arguing that, in several models that relate inflation to price dispersion, the effects of cost increases on dispersion is similar to the effects of general inflation. We also disentangle the effects of aggregate and idiosyncratic shocks on price dispersion. In general, we find that the higher the drift rate of input costs of a given commodity, the larger the amount of price dispersion. The standard deviation of idiosyncratic shocks also is positively correlated with the degree of price dispersion. © 1999 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

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  • Joe Beaulieu & Joe Mattey, 1999. "The Effects Of General Inflation And Idiosyncratic Cost Shocks On Within-Commodity Price Dispersion: Evidence From Microdata," The Review of Economics and Statistics, MIT Press, vol. 81(2), pages 205-216, May.
  • Handle: RePEc:tpr:restat:v:81:y:1999:i:2:p:205-216

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    References listed on IDEAS

    1. Balke, Nathan S. & Wynne, Mark A., 2000. "An equilibrium analysis of relative price changes and aggregate inflation," Journal of Monetary Economics, Elsevier, vol. 45(2), pages 269-292, April.
    2. Richard De Abreu Lourenco & David Gruen, 1995. "Price Stickiness and Inflation," RBA Research Discussion Papers rdp9502, Reserve Bank of Australia.
    3. Michael F. Bryan & Stephen G. Cecchetti, 1994. "Measuring Core Inflation," NBER Chapters,in: Monetary Policy, pages 195-219 National Bureau of Economic Research, Inc.
    4. Vining, Daniel R, Jr & Elwertowski, Thomas C, 1976. "The Relationship between Relative Prices and the General Price Level," American Economic Review, American Economic Association, vol. 66(4), pages 699-708, September.
    5. George A. Akerlof & William R. Dickens & George L. Perry, 1996. "The Macroeconomics of Low Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 1-76.
    6. Laurence Ball & N. Gregory Mankiw, 1995. "Relative-Price Changes as Aggregate Supply Shocks," The Quarterly Journal of Economics, Oxford University Press, vol. 110(1), pages 161-193.
    7. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    8. Stephen G. Cecchetti, 1997. "Measuring short-run inflation for central bankers," Review, Federal Reserve Bank of St. Louis, issue May, pages 143-155.
    9. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 33(1), pages 125-132.
    10. N. Gregory Mankiw, 1994. "Monetary Policy," NBER Books, National Bureau of Economic Research, Inc, number greg94-1, January.
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    Cited by:

    1. Chad Syverson, 2004. "Prices, Spatial Competition, and Heterogeneous Producers: An Empirical Test," Working Papers 04-16, Center for Economic Studies, U.S. Census Bureau.

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