Inflation and Relative Price Variability

Muhammad Akmal ()
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Muhammad Akmal: State Bank of Pakistan

SBP Research Bulletin, 2011, vol. 7, 1-9

Abstract: This paper explores the nature of relationship between inflation and relative price variability (RPV). It finds a U-shape relationship between the two that not only fits the overall data well but also different inflationary regimes as identified by Bai-Perron multiple structural break tests. It was also found that threshold level of inflation, in terms of RPV, varies with general inflationary phases, i.e., in period of low inflation, the threshold inflation is also low and vice versa. It suggests a cautious monetary policy during different phases of inflation.

Keywords: relative price variability; inflation; threshold inflation (search for similar items in EconPapers)
JEL-codes: E30 E31 E52 (search for similar items in EconPapers)
Date: 2011
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