Determinants of Relative Price Variability during a Recession: Evidence from Canada at the Time of the Great Depression

David Fielding, Chris Hajzler () and James (Jim) MacGee ()
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Chris Hajzler: Department of Economics, University of Otago

No 1107, Working Papers from University of Otago, Department of Economics

Abstract: Most studies find that relative price variability (RPV) is a U-shaped or V-shaped function of anticipated inflation, and a V-shaped function of unanticipated inflation. One exception is Reinsdorf (1994), who finds that RPV in the United States during the 1980s recession was monotonically decreasing in unanticipated inflation. We suggest a reason for this difference, and test our conjecture using data from inter-war Canada. Our results indicate that in recessionary conditions a positive inflation shock does reduce RPV. However, this reduction is unlikely to correspond to higher consumer utility; this has implications for the conduct of monetary policy during a recession.

Keywords: Relative price variability; Inflation; Canada; Great Depression (search for similar items in EconPapers)
JEL-codes: E31 N1 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2011-08, Revised 2011-08
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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