Money and the dispersion of relative prices revisited

Author： Belton Willie J. Cebula Richard J. Nair-Reichert Usha

ISSN： 1466-4283

Source： Applied Economics, Vol.34, Iss.14, 2002-09, pp. : 1765-1773

Disclaimer: Any content in publications that violate the sovereignty, the constitution or regulations of the PRC is not accepted or approved by CNPIEC.

Previous Menu Next

Abstract

This study extends the literature on relative price dispersion by addressing two questions that have remained largely unanswered: (a) What is the impact on relative price dispersion of the variance of the uncertain relationship between money and prices? (b) Is there evidence across industries of a differential impact on price dispersion of the variance of the uncertain relationship between money and prices? These issues are examined in a bivariate GARCH-M model using monthly data from 1963–1997. The results at the aggregate level indicate that the variance of the uncertain relationship between money and prices has a positive and significant impact on relative price dispersion during the period 1963 to 1997. Disaggregated analysis at the industry level suggests that the magnitude of the impact of the variance of the uncertain money–price relationship differs greatly across industries and generally tends to have a greater impact on the price dispersion of durable goods than on the price dispersion of nondurable goods. This study also has important implications regarding the effectiveness of rules-based monetary policy in eliminating uncertainty associated with discretionary monetary policy.