Determinants of Relative Price Variability during a Recession: Evidence from Canada at the Time of the Great Depression
Fielding, David; Hajzler, Chris; MacGee, Jim
Most studies find that relative price variability (RPV) is a U-shaped or V-shaped function of anticipated inflation, and a V-shaped function of unanticipated inflation. One exception is Reinsdorf (1994), who finds that RPV in the United States during the 1980s recession was monotonically decreasing in unanticipated inflation. We suggest a reason for this difference, and test our conjecture using data from inter-war Canada. Our results indicate that in recessionary conditions a positive inflation shock does reduce RPV. However, this reduction is unlikely to correspond to higher consumer utility; this has implications for the conduct of monetary policy during a recession.
Publisher: University of Otago
Series number: 1107
Keywords: relative price variability; inflation; Canada; Great Depression
Research Type: Discussion Paper