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Relative prices and inflation: new evidence from different inflationary contexts

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This paper analyses the relationship between inflation and relative price variability, in the direction of the latter, in two countries with very different inflationary experiences: Argentina and Spain. To address this objective, using disaggregated price indexes (the Wholesale Price Index for Argentina and the Consumer Price Index for Spain), we delimitate different inflationary regimes and compute a set of regressions for each country. Our results suggest evidence in favour of the non-neutrality of inflation (mostly in hyperinflation periods) and do not support either the menu costs or the signal extraction approaches. We also detect significant structural changes in the relationship depending on the inflationary regime.

Document Type: Research Article


Affiliations: 1: Teoría Económica y Economía Política, Universidad de Sevilla, Sevilla, Spain 2: Universidad Nacional del Sur, Economía, Bahía Blanca, Argentina 3: Universidad Pablo de Olavide, Economía, Sevílla, Spain

Publication date: September 10, 2006

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