Variability of inflation and the dispersion of relative prices: Evidence from the Chinese hyperinflation of 1946–1949

Abstract

This paper uses data from the Chinese hyperinflation of 1946–1949 to focus on the relationship between the variability in the general price level and the dispersion in relative prices. The issue is important because it bears on the ‘natural rate hypothesis’ which supports the postulate that these two monetary variables are independent. Our results reinforce the bulk of previous evidence which suggests a positive correlation between the variation in inflation rate and the dispersion in relative prices during inflationary episodes.