On the asymmetric U-shaped relationship between inflation, inflation uncertainty, and relative price skewness in the UK
Document Type
Article
Publication Title
Journal of Money, Credit and Banking
Abstract
We investigate the asymmetric relationships between aggregate inflation and the second and third moments of the cross-sectional distribution of relative prices using a modified Calvo pricing model with regime-dependent price rigidities. Calibration experiments reveal that the inflation-standard deviation and inflation-skewness relationships exhibit U-shaped asymmetries around the historical mean inflation rate. UK sectoral data support our results. We conclude that monetary policy should target an inflation rate proximate to the (common) minima of these nonlinear relationships and that core inflation measures should not be used for policy purposes as they exclude much of the information contained in the higher moments.
DOI Link
Publication Date
1-4-2013
Publisher
Wiley
Volume
Vol.45
Issue
Iss.7
Recommended Citation
Greenwood-Nimmo, Matthew; Kim, Minjoo; Shin, Yongcheol; and Chaudhuri, Kausik, "On the asymmetric U-shaped relationship between inflation, inflation uncertainty, and relative price skewness in the UK" (2013). Faculty Publications. 1665.
https://research.iimb.ac.in/fac_pubs/1665
