Inflation shocks drive price variability in consumer search models.
The article discusses how inflation affects the variability of prices and inflation rates across different goods or locations. Early studies connected these variations to theoretical models, but recent research shows inconsistent results. Specifically, while inflation shocks increase inflation rate variability, they decrease price variability. This pattern aligns with consumer search models like Reinganum's. Understanding price dynamics in modern economies requires revisiting the theoretical basis of empirical models.