RELATIVE PRICE VARIABILITY AND INFLATION - EVIDENCE FROM US CITIES

We test whether the time-series positive correlation of inflation and intermarket relative price variability is also present in a cross sect ion of U.S. cities. We find this correlation to be a robust empirical regularity: cities that have higher than average inflation also have h igher than average relative price dispersion, ceteris paribus. This re sult holds for different periods of time, for different classes of goo ds, and across different time horizons. Our results suggest that at le ast part of the relationship between inflation and relative price vari ability cannot be explained by monetary factors.