New evidence on the relation between inflation and price dispersion

It is widely presumed that inflation causes or is at least associated with price dispersion, and indeed the literature provides both empirical and theoretical support for this view. In contrast with the prior literature, it is shown that inflation and price dispersion may be negatively related. Paradoxically, the theoretical explanation for this phenomemon is based on consideration of incomplete information similar to those often used to argue for a positive relation between these variables. The study is also distinguished by its use of a broad panel of micro-level data on different sellers' prices for the same good rather than aggregated price averages or indexes.