@techreport{Becker2011What,
abstract = {Recent monetary search and Calvo-type models predict that the relationship between inflation and price dispersion is U-shaped, implying an optimal rate of inflation above zero. Moreover, monetary search models emphasize a critical dependence of the real effects of inflation on sellers' market power, whereas Calvotype models suggest that the degree of price rigidity significantly affects the inflation - price dispersion nexus. Using a new set of highly disaggregated sectoral price data from a panel of European countries, this paper contributes to the literature by testing the empirical relevance of these two theoretical predictions. In line with monetary search theory, a U-shaped profile is found, provided that markups are sufficiently high, but the relationship breaks down under a more competitive environment. Contrarily, no evidence is found to support the contentions of Calvo-type models: U-shaped effects of inflation occur in product sectors with sticky as well as highly flexible prices.},
address = {Berlin},
author = {Sascha Becker},
copyright = {http://www.econstor.eu/dspace/Nutzungsbedingungen},
keywords = {C23; D40; E31; F15; 330; inflation; relative price variability; price level index; Euro-area; market structure; monetary search model; dynamic panel data models; Taxigewerbe; Betrug; Vertrauensg\"{u}ter; Asymmetrische Information; Feldforschung; Athen},
language = {eng},
number = {2011-019},
publisher = {SFB 649, Economic Risk},
title = {What drives the relationship between inflation and price dispersion? Market power vs. price rigidity},
type = {SFB 649 discussion paper},
url = {http://hdl.handle.net/10419/56736},
year = {2011}
}
