Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/105905
Authors: 
Schreiber, Sven
Scharff, Juliane
Year of Publication: 
2008
Series/Report no.: 
IMK Working Paper 12/2008
Abstract: 
Distortionary effects of inflation on relative prices are the main argument for inflation stabilization in macro models with sticky prices. Under indexation of nonoptimized prices those models imply a nonlinear and dynamic impact of inflation on the cross-sectional price dispersion (relative-price variability, RPV). Using US sectoral prices we estimate (a generalized form of) the theoretical relationship between inflation and RPV. We confirm the impact of inflation fluctuations but find hitherto neglected endogeneity biases, and our IV and GMM estimates indicate that average (“trend”) inflation is significant for indexation. Lagged inflation is less important.
Subjects: 
relative price variability
trend inflation
endogeneity bias
JEL: 
E31
C22
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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