Inflation and Relative Price Dispersion: Evidence for Iran

The recent literature on the welfare cost of inflation emphasizes inflation's effects on the dispersion of relative prices. this paper tests three models that predict a relationship between the relative price dispersion (rpd) and facets of inflation such as expected inflation, unexpected inflation, and inflation uncertainty. these are, correspondingly, the sheshinski- weiss menu cost model, the lucas-barro signal-extraction model, and the hercowitz-cukierman extension of the signal extraction model. the results verify the signal extraction model and its extension in iran. however, there is no evidence of menu cost model