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Inflation and Relative Price Variability: Durables vs. Nondurables and ServicesJohn E. Golob |
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. John E. Golob is a senior economist at the Federal Reserve Bank of Kansas City. David G. Bishop, formerly a research associate at the bank, is a product specialist with Sprint Corporation. The authors are grateful to Larry Ball for comments on an early version of this paper. The views expressed herein are those of the authors and do not necessarily reflect the views of the Federal Reserve Bank of Kansas City or the Federal Reserve System. The material contained herein is of a preliminary nature and is circulated to stimulate discussion.Back to top RWP home |