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Inflation and the Skewness of the Distribution of Relative Price Changes: Empirical Evidence for Germany

  • Jörg Döpke
  • Christian Pierdzioch

The present paper uses German annual data covering the period 1969-2000 to present evidence on the link between aggregate inflation and the higher-order moments of the distribution of relative price changes. Our empirical findings confirm predictions of contributions to the theoretical literature suggesting that skewness of this distribution is an important explanatory variable for the inflation rate. Further, the skewness measure also helps to explain shifts in the Phillips curve. Moreover, a structural vector autoregression reveals that the skewness measure helps to explain the variations of real output and might, therefore, serve as a measure of supply side shocks hitting the economy. Der Aufsatz untersucht auf der Basis deutscher Jahresdaten für den Zeitraum 1969-2000 den Zusammenhang zwischen der gesamtwirtschaftlichen Inflationsrate und den höheren Momenten der Verteilung der relativen Preisveränderungen. Unsere empirischen Ergebnisse bestätigen die Vorhersagen theoretischer Ansätze, nach denen die Schiefe der Verteilung relativer Preisveränderungen eine erklärende Variable für die Inflationsentwicklung darstellt. Die Schiefe erlaubt es, Verschiebungen der Phillipskurve zu erklären. Empirische Untersuchungen unter Zuhilfenahme einer strukturellen Vektorautoregression zeigen, dass die Variation des Outputs teilweise mit Hilfe dieser Variablen erklärt werden kann. Die Schiefe relativer Preisveränderungen ist somit ein geeignetes Maß für Angebotsschocks, von denen die Volkswirtschaft getroffen wird.

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File URL: https://www.ifw-members.ifw-kiel.de/publications/inflation-and-the-skewness-of-the-distribution-of-relative-price-changes-empirical-evidence-for-germany/kap1059.pdf
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Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1059.

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Length: 31 pages
Date of creation: Jul 2001
Date of revision:
Handle: RePEc:kie:kieliw:1059
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  1. Ratfai, Attila, 2000. "Relative price skewness and inflation: a structural VAR framework," Discussion Paper Series In Economics And Econometrics 0028, Economics Division, School of Social Sciences, University of Southampton.
  2. Wolfgang Franz, 2001. "Neues von der NAIRU?," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 221(3), pages 256-284.
  3. Robert A. Amano & R. Tiff Macklem, 1997. "Menu Costs, Relative Prices, and Inflation: Evidence for Canada," Working Papers 97-14, Bank of Canada.
  4. Laurence Ball & N. Gregory Mankiw, 1992. "Relative-Price Changes as Aggregate Supply Shocks," NBER Working Papers 4168, National Bureau of Economic Research, Inc.
  5. Michael F. Bryan & Stephen G. Cecchetti, 1996. "Inflation and the Distribution of Price Changes," NBER Working Papers 5793, National Bureau of Economic Research, Inc.
  6. Funke, Michael, 1997. "How important are demand and supply shocks in explaining German business cycles?: New evidence on an old debate," Economic Modelling, Elsevier, vol. 14(1), pages 11-37, January.
  7. 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.
  8. Hodrick, Robert J & Prescott, Edward C, 1997. "Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 1-16, February.
  9. Fischer, Stanley, 1982. "Relative price variability and inflation in the United States and Germany," European Economic Review, Elsevier, vol. 18(1), pages 171-196.
  10. Holly, Sean, 1997. "Relative Price Dispersion and the Rate of Inflation: The Evidence from Japan," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 12, pages 206-226.
  11. Fischer, Stanley, 1982. "Relative price variability and inflation in the United States and Germany," European Economic Review, Elsevier, vol. 18(2), pages 171-196.
  12. Richard De Abreu Lourenco & David Gruen, 1995. "Price Stickiness and Inflation," RBA Research Discussion Papers rdp9502, Reserve Bank of Australia.
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