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Relative Price Variability and Inflation: New evidence

Listed author(s):
  • Deniz Baglan

    ()

    (Department of Economics, Howard University)

  • M. Ege Yazgan

    ()

    (Department of Economics, Kadir Has University)

  • Hakan Yilmazkuday

    ()

    (Department of Economics, Florida International University)

This paper investigates the relationship between relative price variability (RPV) and inflation using monthly micro price data for 128 goods in 13 Turkish regions/cities for the period 1994-2010. The unique feature of this data set is the inclusion of annual inflation rates ranging between 0% and 90%. Nonparametric estimations show that there is a hump-shaped relationship between RPV and inflation, where the maximum RPV is achieved when annual inflation is approximately 20%. It is shown that this result is consistent with a region- or city-level homogenous menu cost model featuring Calvo pricing with an endogenous contract structure and non-zero steady-state inflation.

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File URL: http://economics.fiu.edu/research/working-papers/2015/1502/1502.pdf
File Function: First version, 2015
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Paper provided by Florida International University, Department of Economics in its series Working Papers with number 1502.

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Length: 26 pages
Date of creation: Mar 2015
Handle: RePEc:fiu:wpaper:1502
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Web page: http://economics.fiu.edu

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