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Title:Inflation and relative price variability in the euro area: evidence from a panel threshold model PDF Logo
Authors:Scharff, Juliane
Nautz, Dieter
Issue Date:2006
Series/Report no.:Discussion paper Series 1 / Volkswirtschaftliches Forschungszentrum der Deutschen Bundesbank 2006,14
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.
Subjects:Inflation
Relative Price Variability
Panel Threshold Models
JEL:C23
E31
Document Type:Working Paper
Appears in Collections:Discussion Paper Series 1: Economic Studies, Deutsche Bundesbank

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