Does inflation asymmetrically affect relative price variability?

Sartaj Rasool Rather (), S. Raja Sethu Durai and M Ramachandran ()

Applied Economics Letters, 2014, vol. 21, issue 2, 80-83

Abstract: The U-shaped relationship between inflation and price dispersion around nonzero inflation rate is due to the use of aggregate measure of relative price variability (RPV), which amounts to specification errors in a piecewise linear regression models. However, the true underlying relationship between inflation and inflation-induced RPV is found to be U-shaped around zero inflation and inflation seems to have asymmetric impact on price dispersion as predicted by menu cost models.

Date: 2014
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DOI: 10.1080/13504851.2013.842632

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