Inflationary regimes and relative price variability: Evidence from Argentina

Abstract

This paper explores the relation between inflation and relative prices for Argentina over the 1960-1993 period. The study is carried out in the framework of four inflationary regimes: moderate, high, very high inflation and hyperinflation. The evidence favors the view of non-neutrality of inflation: relative price variability is increasing in inflation, but decreasing when inflation climbs smoothly and gradually. The inflation rate and its volatility are the main explanatory factors of price variability, while the effects of expected and unexpected inflation are ambiguous. In contrast to previous consensus, we found that fix price variability is always increasing in inflation, and particularly in extreme inflation. In addition, the relation between inflation and relative prices exhibits structural changes across different levels of inflation.