Distribution Of Relative Prices Research Articles

Basic food and drink price distributions transcend time and culture

In this empirical study, we show that the shape of the distribution of relative prices of basic food and drink items has been extraordinarily robust, from ancient Egypt to modern Chile, whether there be peace and economic stability, war, revolution, depression or hyperinflation. The width of the distribution of log prices does not deviate significantly from a specific value, which would appear to be universal. This property of relative prices has not changed over the past three thousand years, wherever there have been food markets, despite great differences in culture, institutions, and the particular food and drink items consumed.

On the Asymmetric U‐Shaped Relationship between Inflation, Inflation Uncertainty, and Relative Price Skewness in the UK

We investigate the asymmetric relationships between aggregate inflation and the second and third moments of the cross‐sectional distribution of relative prices using a modified Calvo pricing model with regime‐dependent price rigidities. Calibration experiments reveal that the inflation‐standard deviation and inflation‐skewness relationships exhibit U‐shaped asymmetries around the historical mean inflation rate. UK sectoral data support our results. We conclude that monetary policy should target an inflation rate proximate to the (common) minima of these nonlinear relationships and that core inflation measures should not be used for policy purposes as they exclude much of the information contained in the higher moments.

On the Asymmetric U-Shaped Relationship between Inflation, Inflation Uncertainty and Relative Price Skewness in the UK

We investigate asymmetries in the relationship between the cross-sectional mean (aggregate) rate of inflation and the second and third central moments of the cross-sectional distribution of relative prices by means of a modified Calvo pricing model with regime-dependent price rigidities. We assume that price rigidity is more pronounced when price exceeds marginal cost, a situation that we identify with weak competition and market power. Calibration experiments using realistic parameterisations reveal that the inflation-standard deviation and inflation-skewness relationships exhibit pronounced U-shaped asymmetries around the historical mean rate of inflation. UK sectoral inflation data supports our results, and indicates that our inclusion of regime-switching rigidities is important in providing an accurate characterisation of the higher moments of the distribution of sectoral price changes. We conclude that monetary policy should be designed to exploit these U-shaped relationships by targeting a level of inflation proximate to the (common) turning point. Furthermore, we conclude that core inflation measures should not be used for policy purposes as they exclude much of the information contained in the higher moments of the distribution of price changes.

Inflation and the Distribution of Relative Prices: The Role of Productivity and Money Supply Shocks

This paper examines the role of aggregate productivity and money supply shocks in determining the relationship between inflation and the distribution of relative commodity prices. I estimate a restricted VAR that includes aggregate variables and individual commodity prices and compute the cross-sectional distribution of the dynamic responses of commodity prices to these aggregate shocks. The findings indicate that both shocks lead to positive correlation between inflation and the dispersion of relative prices and that the response of prices across commodities is not uniform, even in the long run.

Inflation and the Distribution of Relative Prices: The Role of Productivity and Money Supply Shocks

This paper examines the role of aggregate productivity and money supply shocks in determining the relationship between inflation and the distribution of relative commodity prices. I estimate a restricted VAR that includes aggregate variables and individual commodity prices, and compute the distribution of the dynamic responses of commodity prices to these aggregate shocks for each forecast horizon. The findings indicate that both shocks lead to positive correlation between inflation and the dispersion of relative prices, and that the response of prices across commodities is not uniform, even in the long-run.

Interpreting the Correlation Between Inflation and the Skewness of Relative Prices: A Comment on Bryan and Cecchetti

Interpreting the Correlation Between Inflation and the Skewness of Relative Prices: A Comment on Bryan and Cecchetti

A proposition on short-run departures from the law-of-one-price: Unanticipated inflation, relative-price dispersion, and commodity arbitrage

This paper proposes an explanation of short-run departures from the law-of-one-price based on the characteristics of the inflationary process and changes in the distribution of relative prices. Unexpected inflation gives rise to volatility of relative prices. The more unexpected (and hence uneven) the rate of inflation, the greater the difficulty in discerning from a given structure of relative prices commodity-arbitrage opportunities which may be expected to persist and those transient opportunities which do not warrant a firm's incurring fixed costs of arbitrage. An illustration portrays a risk-averse firm confronting an international arbitrage opportunity.

Rational expectations and the role of monetary policy: A generalization

This paper investigates the effects of introducing the following two alterations into a multimarket, partial information, rational expectations model; (1) individuals in any market may sample currently more prices than just the current price on their own market; (2) they choose the amount of their current information so as to minimize the sum of the costs of getting information and of being off their full information demand and supply curves. Under those circumstances any change in the variance of aggregate excess demand shocks (whether caused by real or monetary elements) affects the equilibrium level of information in the economy, in addition to its other direct effects previously recognized in the literature. Among the issues dealt with are the implications of these alterations for the following: (1) the Lucas hypothesis on the slope of the Phillips curve; (2) the optimal monetary variance and the optimal money feedback rule; (3) the effect of the level of information and of aggregate variance on the distribution of relative prices and related issues.