Deflation and relative prices: Evidence from Japan and Hong Kong

Stefan Gerlach () and Peter Kugler

No 12, IMFS Working Paper Series from Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS)

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

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
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Citations: View citations in EconPapers (14)

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Working Paper: Deflation and Relative Prices: Evidence from Japan and Hong Kong (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:imfswp:12

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