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Relative price skewness and inflation: a structural VAR framework

Relative price skewness and inflation: a structural VAR framework
Relative price skewness and inflation: a structural VAR framework
This study evaluates the empirical significance of idiosyncratic pricing shocks in inflation dynamics. To this end, using store-level price data for a selected group of products and employing identification schemes dictated by (S,s) pricing theory, product-level Structural Vector Autoregressions comprised of inflation and relative price skewness are estimated. Robustly to alternative identification assumptions, definitions of the relative price and measures of asymmetry in relative price distributions, idiosyncratic shocks tend to explain about 25 to 30 percent of the forecast error variance in inflation rates at the 12-month horizon. They also lead to substantial build-up in inflation after about 3 to 5 months following the initial disturbance
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University of Southampton
Ratfai, Attila
b9e8f335-83a7-44be-a4f4-e8010fc0caf7
Ratfai, Attila
b9e8f335-83a7-44be-a4f4-e8010fc0caf7

Ratfai, Attila (2000) Relative price skewness and inflation: a structural VAR framework (Discussion Papers in Economics and Econometrics, 28) Southampton, UK. University of Southampton 53pp.

Record type: Monograph (Discussion Paper)

Abstract

This study evaluates the empirical significance of idiosyncratic pricing shocks in inflation dynamics. To this end, using store-level price data for a selected group of products and employing identification schemes dictated by (S,s) pricing theory, product-level Structural Vector Autoregressions comprised of inflation and relative price skewness are estimated. Robustly to alternative identification assumptions, definitions of the relative price and measures of asymmetry in relative price distributions, idiosyncratic shocks tend to explain about 25 to 30 percent of the forecast error variance in inflation rates at the 12-month horizon. They also lead to substantial build-up in inflation after about 3 to 5 months following the initial disturbance

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Published date: 2000

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Local EPrints ID: 33126
URI: https://eprints.soton.ac.uk/id/eprint/33126
PURE UUID: d6bcedfb-bd08-4b54-93b7-3803f1c781cd

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Date deposited: 18 Jul 2006
Last modified: 17 Jul 2017 15:53

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