 Inflation and relative price variability: Evidence for IndiaSartaj Rasool Rather (), S. Raja Sethu Durai and M Ramachandran () Journal of Asian Economics, 2014, vol. 30, issue C, 32-41 Abstract: This study decomposes relative price variability into a component due to inflation and a component due to real factors. The empirical results for India suggest that real factors account for 55% and inflation accounts for 45% of the variability in relative price changes. The proportion of inflation induced relative price variability increases with the rise in inflation, implying that inflation has distortionary effects on the structure of relative prices. Further, larger part of variability in the relative price changes seems to have been generated by fluctuations in the relative prices of a few commodities. The sector wise analysis shows that the major share of total relative price variability is contributed by fluctuations in the prices of manufactured products. The more crucial inference that emerges from the empirical analysis is that the inflation rate at which variability of relative price changes is minimum is found to be 4.5%, which is consistent with the official threshold rate often claimed by the Reserve Bank of India. Keywords: Relative price variability; Decomposition analysis; Minimum-variance inflation rate (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:asieco:v:30:y:2014:i:c:p:32-41 DOI: 10.1016/j.asieco.2013.12.002 Access Statistics for this article Journal of Asian Economics is currently edited by C. Wiemer More articles in Journal of Asian Economics from Elsevier |
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