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Inflation and relative price variability in the euro area: evidence from a panel threshold model

Juliane Scharff and Dieter Nautz ()

No 2006,14, Discussion Paper Series 1: Economic Studies from Deutsche Bundesbank

Abstract: In recent macroeconomic theory, relative price variability (RPV) generates the central distortions of inflation. This paper provides first evidence on the empirical relation between inflation and RPV in the euro area focusing on threshold effects of inflation. We find that expected inflation significantly increases RPV if inflation is either very low (below -1.38% p.a.) or very high (above 5.94% p.a.). In the intermediate regime, however, expected inflation has no distorting effects which supports price stability as an outcome of optimal monetary policy.

Keywords: Inflation; Relative Price Variability; Panel Threshold Models (search for similar items in EconPapers)
JEL-codes: C23 E31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-eec, nep-ets, nep-mac and nep-mon
Date: 2006
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Journal Article: Inflation and relative price variability in the euro area: evidence from a panel threshold model (2012) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdp1:4250

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