The Relationship Between Inflation and the Distribution of Relative Price Changes

Andreas Hornstein, Francisco Ruge-Murcia and Alexander Wolman

No 24-15, Working Paper from Federal Reserve Bank of Richmond

Abstract: Monthly U.S. inflation from 1995 through 2019 is well explained by statistics summarizing the monthly distribution of relative price changes. We document this relationship and use it to evaluate the behavior of inflation during and after the COVID-19 pandemic. In earlier periods when inflation was not stable, the relationship between inflation and the distribution of relative price changes shifts, much like the Phillips curve. We use that shifting relationship to derive a measure of underlying inflation that complements existing measures used by central banks.

Keywords: inflation; monetary policy (search for similar items in EconPapers)
Date: 2024-12
New Economics Papers: this item is included in nep-cba, nep-inv and nep-mon
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