Working Paper

Inflation and relative price variability : durables vs. nondurables and services

Abstract: Many researchers find a positive relationship between inflation and the variability of relative prices within aggregate price indices. This paper looks at the relationship between inflation and the variability of relative prices for three categories of the consumption deflator: durable goods, nondurable goods, and services. Consistent with previous research on relative price variability within aggregate consumption, we find inflation is positively correlated with relative price variability within both nondurables and services. In contrast, we find a negative correlation between inflation and relative price variability within durables. Monte Carlo simulations verify the statistical significance of the results. The results are consistent with a sticky-price model of relative price variability.

Keywords: Inflation (Finance); Prices; Consumption (Economics);

Bibliographic Information

Provider: Federal Reserve Bank of Kansas City

Part of Series: Research Working Paper

Publication Date: 1997

Number: 97-12