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

Gulnihal Aksoy, Don Bredin, Deirdre Corcoran and Stilianos Fountas
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Gulnihal Aksoy: University College Dublin, IRELAND
Deirdre Corcoran: Galway Mayo Institute of Technology, IRELAND

Discussion Paper Series from Department of Economics, University of Macedonia

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.

Keywords: GARCH-M; Relative Price Dispersion; Infl ation. (search for similar items in EconPapers)
JEL-codes: C32 E31 (search for similar items in EconPapers)
Date: 2016-12, Revised 2016-12
New Economics Papers: this item is included in nep-mac and nep-mon
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