On the Asymmetric U‐Shaped Relationship between Inflation, Inflation Uncertainty, and Relative Price Skewness in the UK

Kausik Chaudhuri, Matthew Greenwood‐nimmo, Minjoo Kim () and Yongcheol Shin
Authors registered in the RePEc Author Service: Matthew Greenwood-Nimmo

Journal of Money, Credit and Banking, 2013, vol. 45, issue 7, 1431-1449

Abstract: We investigate the asymmetric relationships between aggregate inflation and the second and third moments of the cross‐sectional distribution of relative prices using a modified Calvo pricing model with regime‐dependent price rigidities. Calibration experiments reveal that the inflation‐standard deviation and inflation‐skewness relationships exhibit U‐shaped asymmetries around the historical mean inflation rate. UK sectoral data support our results. We conclude that monetary policy should target an inflation rate proximate to the (common) minima of these nonlinear relationships and that core inflation measures should not be used for policy purposes as they exclude much of the information contained in the higher moments.

Date: 2013
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https://doi.org/10.1111/jmcb.12058

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Journal Article: On the Asymmetric U-Shaped Relationship between Inflation, Inflation Uncertainty, and Relative Price Skewness in the UK (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:45:y:2013:i:7:p:1431-1449

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