Inflation and relative price asymmetry

By placing store-level price data into bivariate Structural VAR models of inflation and relative price asymmetry, this study evaluates the quantitative importance of idiosyncratic pricing shocks in short-run aggregate price change dynamics. Robustly to alternative definitions of the relative price, identification schemes dictated by two-sided (S,s) pricing theory and measures of asymmetry in the relative price distribution, idiosyncratic shocks explain about 25 to 30 percent of the forecast error variance in inflation at the 12-month horizon. While the contemporaneous correlation between inflation and relative price asymmetry is positive, idiosyncratic shocks lead to a substantial build-up in inflation only after two to five months following the initial disturbance.

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Year of publication:	2004
Authors:	Ratfai, Attila
Publisher:	European Central Bank
Subject:	Inflation \| Relativer Preis \| Relative prices \| Schock \| Shock \| Theorie \| Theory \| Ungarn \| Hungary \| VAR-Modell \| VAR model

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Extent:	1580032 bytes 65 p. application/pdf
Series:	Working paper series / European Central Bank ; 301
Type of publication:	Book / Working Paper
Language:	English
Classification:	E31 - Price Level; Inflation; Deflation ; Inflation ; Economic development. Economic growth ; Individual Working Papers, Preprints ; Hungary
Source:	ArchiDok