Price variability and price dispersion in a stable monetary environment: Evidence from German retail markets

Matthias Fengler and Joachim Winter ()

No 2000,90, SFB 373 Discussion Papers from Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes

Abstract: We investigate the relationship between inflation and price variation using highly disaggregated, weekly price data for consumption goods recorded in Germany during 1995, a low inflation period. We find a significant positive correlation between the rates of price change and price dispersion, both at the level of individual products and product groups. However, we find no correlation between the rates of price change and price variability. Together with results from similar studies, Tommasi (1993) and Parsley (1996), a remarkable pattern emerges: When aggregate nominal shocks are small, only price dispersion is correlated with price changes. As the rate of inflation rises, both variability and dispersion become affected. During hyperinflation, systematic movements of price dispersion seem to disappear. We conclude that price dispersion is best explained by microeconomic frictions in price adjustment, whereas price variability appears to be related to costly price search and information problems.

Keywords: price dispersion; price variability; inflation (search for similar items in EconPapers)
JEL-codes: E31 (search for similar items in EconPapers)
Date: 2000
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Price variability and price dispersion in a stable monetary environment: evidence from German retail markets (2007)
Working Paper: Price variability and price dispersion in a stable monetary environment: Evidence from German retail markets (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:sfb373:200090

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