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Journal Article

Price Dispersion and Inflation: Evidence from Israel

Theresa Van Hoomissen
Journal of Political Economy
Vol. 96, No. 6 (Dec., 1988), pp. 1303-1314
Stable URL: http://www.jstor.org/stable/1831953
Page Count: 12
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Price Dispersion and Inflation: Evidence from Israel
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Abstract

The paper considers the question whether observed price differentials reflect perceived differences in quality, service agreements, or location or whether information imperfections can explain this phenomenon. It sets out theoretical arguments linking inflation to reductions in the information stock held by agents and thus to greater price dispersion. The hypothesis is tested using monthly price data for 13 uniquely defined goods sold in Israel between 1971 and 1984. Price dispersion is shown to be positively related to the rate of market price inflation. Since inflation is an unlikely proxy for changes in perceived characteristics, the findings support price dispersion theories based on "optimally imperfect" decision making

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