Relative prices and inflation: new evidence from different inflationary contexts

Abstract

This paper analyzes the relationship between inflation and relative price variability, in the direction of the latter, in two countries with very different inflationary experiences: Argentina and Spain. To address this objective, using disaggregated price indexes (the Wholesale Price Index for Argentina and the Consumer Price Index for Spain), we delimitate different inflationary regimes and compute a set of regressions for each country. Our results suggest evidence in favour of the non-neutrality of inflation (mostly in hyperinflation periods) and do not support either the menu costs or the signal extraction approaches. We also detect significant structural changes in the relationship depending on the inflationary regime.

Relative price variability and the Phillips Curve: evidence from Turkey

“…Following work by Mankiw (1994, 1995), more recent studies have also found a relationship between inflation and the skewness of relative price changes (e.g. Debelle and Lamont, 1997;Aucremanne et al, 2002;Caraballo et al, 2006). Although the relative size of the variance and skewness effects is controversial (e.g.…”

Price Dispersion and Optimal Inflation: The Spanish Case

“…Furthermore, this result is robust to different time periods as Table 5 shows. 9 Moreover, inflation expectations and uncertainty can be the underlying causes behind this kind of relation (see, for example, Caraballo et al 2006, Caraballo and Dabús 2008, Caglayan et al 2008, Becker and Nautz 2009band Choi 2010. This issue is studied in the next section.…”

Relative price variability and inflation: New evidence

“…8 We compute the annual inflation for each month, with respect to the 6 Only a few previous studies covered such high rates of inflation along with considerably lower values. In this regard, Choi et al (2011) constitutes the main exception together with Caraballo et al (2006) and Caglayan and Filiztekin (2003).…”

“…Jaramillo (1999) showed that in the U.S., the impact of inflation on RPV, while always positive, is stronger when it is below zero. Similarly, Caraballo et al (2006) report that for Spain and Argentina, the positive effect is stronger when inflation is high and exploded during the hyperinflationary period in Argentina. Using data from Turkey, Caglayan and Filiztekin (2003) also showed that the association is significantly different during low and high inflation periods.…”