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Relative Prices and Inflation: New Evidence from Different Inflationary Contexts

This paper analyzes the relationship between inflation and relative price variability, in the direction of the latter, in two countries with very different inflationary experiences: Argentina and Spain. To address this objective, using disaggregated price indexes (Wholesale Price Index for Argentina and Consumer Price Index for Spain), we delimitate different inflationary regimes and compute a set of regressions for each country. Our results suggest evidence in favor of the non-neutrality of inflation (mostly in hyperinflation periods) and do not support neither the menu costs nor the signal extraction approaches. We also detect significant structural changes in the relationship depending on the inflationary regime.

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Paper provided by Centro de Estudios Andaluces in its series Economic Working Papers at Centro de Estudios Andaluces with number E2004/71.

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Length: 26 pages
Date of creation: 2004
Date of revision:
Handle: RePEc:cea:doctra:e2004_71
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  1. Mustafa Caglayan & Alpay Filiztekin, 2001. "Nonlinear Impact of Inflation on Relative Price Variability," Research Papers 2001_02, University of Liverpool Management School, revised 01 Oct 2002.
  2. Michael F. Bryan & Stephen G. Cecchetti, 1999. "Inflation And The Distribution Of Price Changes," The Review of Economics and Statistics, MIT Press, vol. 81(2), pages 188-196, May.
  3. Bakhshi, Hasan, 2002. "Inflation and relative price variability," Economics Letters, Elsevier, vol. 76(1), pages 27-33, June.
  4. Blejer, Mario I., 1979. "Inflation variability in Latin America : A note on the time series evidence," Economics Letters, Elsevier, vol. 2(4), pages 337-341.
  5. Stanley Fischer, 1981. "Relative Shocks, Relative Price Variability, and Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(2), pages 381-442.
  6. Fielding, David & Mizen, Paul, 2000. "Relative Price Variability and Inflation in Europe," Economica, London School of Economics and Political Science, vol. 67(265), pages 57-78, February.
  7. Dabus, Carlos, 2000. "Inflationary regimes and relative price variability: evidence from Argentina," Journal of Development Economics, Elsevier, vol. 62(2), pages 535-547, August.
  8. Mariano Tommasi, 1992. "Inflation and Relative Prices Evidence from Argentina," UCLA Economics Working Papers 661, UCLA Department of Economics.
  9. Debelle, Guy & Lamont, Owen, 1997. "Relative Price Variability and Inflation: Evidence from U.S. Cities," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 132-52, February.
  10. María Ángeles Caraballo & Carlos Usabiaga, 2003. "Análisis de la estructura de la inflación de las regiones españolas: La metodología de Ball y Mankiw," Economic Working Papers at Centro de Estudios Andaluces E2003/44, Centro de Estudios Andaluces.
  11. 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.
  12. Parsley, David C, 1996. "Inflation and Relative Price Variability in the Short and Long Run: New Evidence from the United States," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(3), pages 323-41, August.
  13. Blejer, Mario I., 1981. "The dispersion of relative commodity prices under very rapid inflation," Journal of Development Economics, Elsevier, vol. 9(3), pages 347-356, December.
  14. Domberger, Simon, 1987. "Relative Price Variability and Inflation: A Disaggregated Analysis," Journal of Political Economy, University of Chicago Press, vol. 95(3), pages 547-66, June.
  15. Lach, Saul & Tsiddon, Daniel, 1992. "The Behavior of Prices and Inflation: An Empirical Analysis of Disaggregated Price Data," Journal of Political Economy, University of Chicago Press, vol. 100(2), pages 349-89, April.
  16. Sheshinski, Eytan & Weiss, Yoram, 1977. "Inflation and Costs of Price Adjustment," Review of Economic Studies, Wiley Blackwell, vol. 44(2), pages 287-303, June.
  17. Michael Aarstol, 1999. "Inflation, Inflation Uncertainty, and Relative Price Variability," Southern Economic Journal, Southern Economic Association, vol. 66(2), pages 414-423, October.
  18. Jaramillo, Carlos Felipe, 1999. "Inflation and Relative Price Variability: Reinstating Parks' Results," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(3), pages 375-85, August.
  19. Viqueira, Angel Palerm, 1991. "Market structure and price flexibility," Journal of Development Economics, Elsevier, vol. 36(1), pages 37-54, July.
  20. Blejer, Mario I, 1983. "On the Anatomy of Inflation: The Variability of Relative Commodity Prices in Argentina," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 15(4), pages 469-82, November.
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