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Determinants of Relative Price Variability during a Recession: Evidence from Canada at the Time of the Great Depression

Author

Listed:
  • David Fielding

    (Department of Economics, University of Otago)

  • Chris Hajzler

    (Department of Economics, University of Otago)

  • Jim MacGee

    (Department of Economics, University of Western Ontario)

Abstract

Most studies find that relative price variability (RPV) is a U-shaped or V-shaped function of anticipated inflation, and a V-shaped function of unanticipated inflation. One exception is Reinsdorf (1994), who finds that RPV in the United States during the 1980s recession was monotonically decreasing in unanticipated inflation. We suggest a reason for this difference, and test our conjecture using data from inter-war Canada. Our results indicate that in recessionary conditions a positive inflation shock does reduce RPV. However, this reduction is unlikely to correspond to higher consumer utility; this has implications for the conduct of monetary policy during a recession.

Suggested Citation

  • David Fielding & Chris Hajzler & Jim MacGee, 2011. "Determinants of Relative Price Variability during a Recession: Evidence from Canada at the Time of the Great Depression," Working Papers 1107, University of Otago, Department of Economics, revised Aug 2011.
    • Handle: RePEc:otg:wpaper:1107
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    File URL: http://www.otago.ac.nz/economics/research/otago076678.pdf
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    References listed on IDEAS

    as
    1. Robinson, Peter M, 1988. "Root- N-Consistent Semiparametric Regression," Econometrica, Econometric Society, vol. 56(4), pages 931-954, July.
    2. Angus Deaton & Christina Paxson, 1998. "Economies of Scale, Household Size, and the Demand for Food," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 897-930, October.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. David Fielding & Chris Hajzler, 2013. "Comment on Relative Price Variability and Inflation in Reinganum's Consumer Search Model," Working Papers 1305, University of Otago, Department of Economics, revised Mar 2013.
    2. Nebiye Yamak & Sinem Kocak & Fatma Kolcu, 2016. "Causal Relationship Between Relative Price Variability and Inflation in Turkey: Evidence from Panel Data," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 19(61), pages 193-210, September.
    3. Nebiye Yamak & Sinem Kocak & Fatma Kolcu, 2016. "Causal Relationship Between Relative Price Variability and Inflation in Turkey:Evidence from Panel Data," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 19(60), pages 183-198, June.

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    More about this item

    Keywords

    Relative price variability; Inflation; Canada; Great Depression;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • N1 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations

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