Inflation and relative price asymmetry
By placing store-level price data into bivariate Structural VAR models of inflation and relative price asymmetry, this study evaluates the quantitative importance of idiosyncratic pricing shocks in short-run aggregate price change dynamics. Robustly to alternative definitions of the relative price, identification schemes dictated by two-sided (S,s) pricing theory and measures of asymmetry in the relative price distribution, idiosyncratic shocks explain about 25 to 30 percent of the forecast error variance in inflation at the 12-month horizon. While the contemporaneous correlation between inflation and relative price asymmetry is positive, idiosyncratic shocks lead to a substantial build-up in inflation only after two to five months following the initial disturbance. JEL Classification: E31
|Date of creation:||Jan 2004|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +49 69 1344 0
Fax: +49 69 1344 6000
Web page: http://www.ecb.europa.eu/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:ecb:ecbwps:20040301. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Official Publications)
If references are entirely missing, you can add them using this form.