Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/62169
Authors: 
Fengler, Matthias R.
Winter, Joachim K.
Year of Publication: 
2000
Series/Report no.: 
Discussion Papers, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes 2000,90
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.
Subjects: 
price dispersion
price variability
inflation
JEL: 
E31
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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