Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/123372
Authors: 
Gerlach, Stefan
Kugler, Peter
Year of Publication: 
2007
Series/Report no.: 
WWZ Working Paper 08/07
Abstract: 
We test the menu cost model of Ball and Mankiw (1994, 1995), which implies that the impact of price dispersion on inflation should differ between inflation and deflation episodes, using data for Japan and Hong Kong. We use a random crosssection sample split when calculating the moments of the distribution of price changes to mitigate the small-cross-section-sample bias noted by Cecchetti and Bryan (1999). The parameter on the third moment is positive and significant in both countries during both the inflation and deflation periods, and the parameter on the second moment changes sign in the deflation period, as the theory predicts.
Subjects: 
inflation
deflation
menu costs
Hong Kong
Japan
JEL: 
E31
Document Type: 
Working Paper

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