Inflation and Relative Price Dispersion in Equity Markets and in Goods and Services Markets
35 Pages Posted: 15 Feb 2001
Date Written: February 2001
Abstract
We examine the link between inflation and the variability of relative prices in U.S. equity markets and in U.S. goods and services markets. We find strong, comparable links in both sets of markets. This finding represents a puzzle since conventional wisdom ? derived from menu cost or imperfect information models ? is not compelling in equity markets. We next examine whether we can attribute the results to small sample biases. We do find an important but generally overlooked bias that is present in many existing studies. However, the bias is too small to explain our own findings, and the puzzle remains.
Keywords: Relative Price Dispersion
JEL Classification: F41, E31, E12
Suggested Citation: Suggested Citation
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