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Relative Prices and Inflation: New Evidence from Different Inflationary Contexts

By María Ángeles Caraballo, Carlos Dabús and Carlos Usabiaga

Abstract

This paper analyzes 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 (Wholesale Price Index for Argentina and Consumer Price Index for Spain), we delimitate different inflationary regimes and compute a set of regressions for each country. Our results suggest evidence in favor of the non-neutrality of inflation (mostly in hyperinflation periods) and do not support neither the menu costs nor the signal extraction approaches. We also detect significant structural changes in the relationship depending on the inflationary regime.inflation, relative price variability, inflation regimes, inflation volatility,expected and unexpected inflation.

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