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Relative Price Dispersion and In flation: Evidence for the UK and the US

Author

Listed:
  • Gulnihal Aksoy

    (University College Dublin, IRELAND)

  • Don Bredin

    (University College Dublin, IRELAND)

  • Deirdre Corcoran

    (Galway Mayo Institute of Technology, IRELAND)

  • Stilianos Fountas

    (University of Macedonia, GREECE)

Abstract

One potential real effect of infl ation is its infl uence on the dispersion of relative prices in the economy which affects economic efficiency and aggregate output. Using a novel data set for the US and UK and a VARMA asymmetric bivariate GARCH-M model of in flation and relative price dispersion, we test for the effects of infl ation and infl ation uncertainty on relative price dispersion. We obtain two main results: First, infl ation affects relative price dispersion positively in the US supporting the menu costs model and negatively in the UK supporting the monetary search model. Second, there is no evidence for the role of infl ation uncertainty in explaining relative price dispersion, either for the US or the UK.

Suggested Citation

  • Gulnihal Aksoy & Don Bredin & Deirdre Corcoran & Stilianos Fountas, 2016. "Relative Price Dispersion and In flation: Evidence for the UK and the US," Discussion Paper Series 2016_05, Department of Economics, University of Macedonia, revised Dec 2016.
    • Handle: RePEc:mcd:mcddps:2016_05
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    References listed on IDEAS

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    More about this item

    Keywords

    GARCH-M; Relative Price Dispersion; Infl ation.;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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