Intercountry differences in the relationship between relative price variability and average prices

This paper provides new evidence on the relationship between relative price variability and inflation. The model uses a consistently defined data set for nine European countries. It benefits from the inclusion and testing of the effects of macroeconomic variables and the incorporation into the measu res of inflation and dispersion adjustments for timeliness, appropriate for mulas, and proximity. The general findings of an effect on relative price v ariability by the macroeconomic environment and negative coefficients on un expected inflation are supported by their occurrence in models estimated by seemingly unrelated regression and a robust systems estimator.