Asymmetric Impact of Relative Price Shocks in Presence of Trend Inflation

Sartaj Rather ()

Working Papers from eSocialSciences

Abstract: This study examines whether skewness of cross sectional distribution of relative price shocks has asymmetric impact on aggregate inflation. The empirical evidence from various countries suggests that the positively skewed shocks have different impact from that of negatively skewed shocks on aggregate inflation. Consistent with the predictions of menu cost models, the empirical results indicate that this asymmetry in the impact of relative price shocks mainly depends on the nature of trend that inflation exhibits for a given period. The crucial inference that emerges from the empirical findings is that the traditional approach of using a linear regression model, to examine the relationship between inflation and skewness during the period with trend inflation, is not appropriate as it may result in misspecification and misleading conclusions. [MSE Working paper No. 153].

Keywords: Inflation; distribution of relative price shocks; menu costs; asymmetry, linear regression model, skewed, cross sectional distribution, relative price shocks, price, (search for similar items in EconPapers)
Date: 2016-11
Note: Institutional Papers
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.esocialsciences.org/Download/repecDownl ... AId=11477&fref=repec

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ess:wpaper:id:11477

Access Statistics for this paper

More papers in Working Papers from eSocialSciences
Bibliographic data for series maintained by Padma Prakash ().