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Nonlinear Impact of Inflation on Relative Price Variability

  • Mustafa Caglayan

    ()

    (University of Liverpool)

  • Alpay Filiztekin

    ()

    (Sabanci University)

In this paper we investigate the link between inflation and relative price variability, and the impact of structural changes in the behavior of inflation using a half-a-century long disaggregated data. Employing panel data techniques to control for aggregate shocks, we show that: 1) the effect of inflation is non-neutral: relative price variability has increased in inflationary as well as deflationary periods, 2) the association between inflation and relative price variability is highly nonlinear 3) there is strong support for menu cost models, but none for signal extraction models.

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Paper provided by University of Liverpool Management School in its series Research Papers with number 2001_02.

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Length: 11 pages
Date of creation: 2001
Date of revision: 01 Oct 2002
Publication status: forthcoming, Economics Letters
Handle: RePEc:liv:livedp:2001_02
Note: This paper was previously circulated as "Relative Price Variability and Inflation: New evidence from Turkey"
Contact details of provider: Postal: Management School University of Liverpool, Chatham Street, Liverpool, L69 7ZH, Great Britain
Phone: +44(0)151 795 3108
Fax: +44(0)151 795 3004
Web page: http://www.liv.ac.uk/management/

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  1. 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.
  2. Parks, Richard W, 1978. "Inflation and Relative Price Variability," Journal of Political Economy, University of Chicago Press, vol. 86(1), pages 79-95, February.
  3. 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.
  4. Guy Debelle & Owen Lamont, 1996. "Relative Price Variability and Inflation: Evidence from US Cities," NBER Working Papers 5627, National Bureau of Economic Research, Inc.
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