Inflation and Relative Price Dispersion in Equity Markets and in Goods and Services Markets

35 Pages Posted: 15 Feb 2001

See all articles by David C. Parsley

David C. Parsley

Vanderbilt University – Finance and Economics

Helen Popper

Santa Clara University - Leavey School of Business - Economics Department

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

Parsley, David C. and Popper, Helen, Inflation and Relative Price Dispersion in Equity Markets and in Goods and Services Markets (February 2001). Available at SSRN: https://ssrn.com/abstract=259624 or http://dx.doi.org/10.2139/ssrn.259624

David C. Parsley (Contact Author)

Vanderbilt University – Finance and Economics ( email )

401 21st Avenue South
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615-322-0649 (Phone)
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HOME PAGE: https://business.vanderbilt.edu/bio/david-parsley/

Helen Popper

Santa Clara University - Leavey School of Business - Economics Department ( email )

500 El Camino Real
Santa Clara, CA California 95053
United States
(408) 554-6952 (Phone)
(408) 554-2331 (Fax)