Relative price variability and monetary policy regimes

This paper analyzes the relationship between discretionary monetary policy actions and relative price variability (RPV). Our model predicts that discretionary policy actions alter the effects of monetary and nonmonetary shocks and money growth on RPV. These predictions are tested with data from the Gold Standard regime (1879-1914) and the Federal Reserve regime (1915-1970). The analysis indicates that the RPV model differs significantly during the regimes and discretionary policy actions affect RPV during the Federal Reserve regime. For the postwar period, the results suggest prices responded asymmetrically to inflationary and deflationary stimuli.