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Inflation, Inflation Uncertainty, and Relative Price Variability

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  • Michael Aarstol

Abstract

This paper tests three models that predict a relationship between the variability of relative price changes (RPV) and aspects of inflation such as expected inflation, unexpected inflation, and inflation uncertainty. These are, respectively, the menu‐costs model, the Lucas‐Barro signal‐extraction model, and the Hercowitz‐Cukierman extension of the Lucas‐Barro model that allows for different price elasticities of supply across markets. The results imply rejection of the hypothesis that any one of the models entirely explains the relationship between inflation and RPV and also imply rejection of the hypothesis that the three models together jointly explain the relationship.

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  • Michael Aarstol, 1999. "Inflation, Inflation Uncertainty, and Relative Price Variability," Southern Economic Journal, John Wiley & Sons, vol. 66(2), pages 414-423, October.
    • Handle: RePEc:wly:soecon:v:66:y:1999:i:2:p:414-423
    DOI: 10.1002/j.2325-8012.1999.tb00256.x
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    References listed on IDEAS

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