Relative price variability and inflation: New evidence

Deniz Baglan, Ege Yazgan () and Hakan Yilmazkuday

Journal of Macroeconomics, 2016, vol. 48, issue C, 263-282

Abstract: This paper investigates the relationship between relative price variability (RPV) and inflation using monthly micro-price data for 128 goods in 13 Turkish regions/cities for the period 1994–2010. The unique feature of this data set is the inclusion of annual inflation rates ranging between 0% and 90%. Semi-parametric estimations show that there is a hump-shaped relationship between RPV and inflation, where the maximum RPV is achieved when annual inflation is approximately 20%. It is shown that this result is consistent with a region- or city-level homogenous menu cost model that features Calvo pricing with an endogenous contract structure and non-zero steady-state inflation.

Keywords: Relative price variability; Inflation; Calvo pricing; Menu costs (search for similar items in EconPapers)
JEL-codes: E31 E52 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (4)

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Working Paper: Relative Price Variability and Inflation: New evidence (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:48:y:2016:i:c:p:263-282

DOI: 10.1016/j.jmacro.2016.04.004

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