Conditional Relative Price Variance and Its Determinants: Open Economy Evidence from Germany

Manfred J M Neumann and Juergen von Hagen

International Economic Review, 1991, vol. 32, issue 1, 195-208

Abstract: The authors present empirical tests of two hypothesis derived from an open economy version of the multimarket equilibrium model. The first hypothesis holds that the conditional relative price variance is positively related to the variance of domestic monetary and foreign nominal and real shocks. The second hypothesis claims a negative impact of an increase in conditional relative price variance on normal output. In contrast to earlier studies, the authors use direct measures of conditional relative price variance based on ARCH estimates. The authors' results show that both hypotheses are consistent with German data. Copyright 1991 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Date: 1991
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