Research & Publications
Inflation, Price Dispersion, and Market Structure
2008, European Economic Review
M. Caglayan, A. Filiztekin, Michael T. Rauh
In this paper, we use a novel data set containing prices from bazaars, convenience stores, and supermarkets in Istanbul to re-examine the relationship between price dispersion and inflation. Although existing evidence is mixed, we find positive and significant relationships between dispersion, on the one hand, and lagged dispersion and unexpected product-specific inflation on the other. We also find evidence that dispersion is initially decreasing in anticipated aggregate inflation but is eventually increasing. Finally, average price duration and dispersion are lowest in the bazaar. This is intuitive, since menu and search costs should be minimal in that market structure.
Caglayan, M., Filiztekin, A., and Michael T. Rauh, (2008), "Inflation, Price Dispersion, and Market Structure,'' European Economic Review, Vol. 52, No. 7, pp. 1187-1208.
Inflation; Market structure; Menu cost models; Micro panel data; Price dispersion; Search; Sticky prices