On the Granger causality between median inflation and price dispersion

Richard Ashley () and Haichun Ye

Applied Economics, 2012, vol. 44, issue 32, 4221-4238

Abstract: The Granger-causal relationship between the size and dispersion of fluctuations in sub-components of the US Consumer Price Index (CPI) is examined using both in-sample and out-of-sample tests and data from January 1968 to December 2008. Strong in-sample evidence is found for feedback between median inflation and price dispersion; the evidence for Granger-causation from median inflation to price dispersion remains strong in out-of-sample testing, but is less strong for Granger-causation in the opposite direction. The implications of these results for the variety of price-level determination models in the literature are discussed.

Date: 2012
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DOI: 10.1080/00036846.2011.587788

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