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Nonlinear Impact of Inflation on Relative Price Variability

Author

Listed:
  • Mustafa Caglayan

    (University of Liverpool)

  • Alpay Filiztekin

    (Sabanci University)

Abstract

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.

Suggested Citation

  • Mustafa Caglayan & Alpay Filiztekin, 2001. "Nonlinear Impact of Inflation on Relative Price Variability," Working Papers 2001_02, University of Liverpool, Department of Economics, revised 01 Oct 2002.
    • Handle: RePEc:liv:livedp:2001_02
    Note: This paper was previously circulated as "Relative Price Variability and Inflation: New evidence from Turkey"
    as

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    Keywords

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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