Deflation and Relative Prices: Evidence from Japan and Hong Kong

Stefan Gerlach () and Peter Kugler ()
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Peter Kugler: University of Basel

Working papers from Faculty of Business and Economics - University of Basel

Abstract: We test the menu cost model of Ball and Mankiw (1994, 1995), which implies NEWLINE that the impact of price dispersion on inflation should differ between inflation and NEWLINE deflation episodes, using data for Japan and Hong Kong. We use a random crosssection NEWLINE sample split when calculating the moments of the distribution of price NEWLINE changes to mitigate the small-cross-section-sample bias noted by Cecchetti and NEWLINE Bryan (1999). The parameter on the third moment is positive and significant in NEWLINE both countries during both the inflation and deflation periods, and the parameter NEWLINE on the second moment changes sign in the deflation period, as the theory predicts.

Keywords: inflation; deflation; menu costs; Hong Kong; Japan (search for similar items in EconPapers)
JEL-codes: E31 (search for similar items in EconPapers)
Date: 2007-08-13
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Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:bsl:wpaper:2007/08

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