Score contribution per author:
α: calibrated so average coauthorship-adjusted count equals average raw count
The impact of inflation on relative price variability (RPV) is an important channel for real effects of inflation. With a view to the recent debate on the Federal Reserves implicit lower and upper bounds of its inflation objective, we introduce a modified version of Hansens panel threshold model to explore the inflation-RPV linkage in U.S. cities. We find two significant inflation thresholds and both positive and negative effects of inflation on RPV. The smallest effect of inflation on RPV is ensured if inflation is low but well above zero. If monetary policy aims at minimizing inflations impact on relative prices, our estimates suggest that U.S. inflation should range between 1.8 percent and 2.8 percent.