R.W. HAFER Federal Reserve Bank of St. Louis GAIL HEYNE-HAFER University of Missouri-St. Louis The Relationship between In f/a tion and Its Variability: International Evidence from the 7970s” This paper reexamines the empirical relationship between the average level of inflation and its variability. Based on a sample of 40 diverse economies, our results suggest that no one group of countries was able to avoid the decreased inflation predictability associated with higher levels of inflation during the 1970s. In contrast, previous research showed that Highly Industrialized countries, as a group, were able to control inflation variability during the period 1950-1970. Our results also suggest that the “threshold” level of inflation appears to have risen substantially during the 1970s. Whereas previous research suggested an upper bound of the threshold at about a four percent rate of inflation, the evidence from the 1970s indicates that the threshold may have risen to about a nine percent inflation rate. 1. Introduction Several studies have examined the relationship between the level of inflation and its variability across countries through time. [Gordon (1971), Okun (1971), Logue and Willett (1976), Foster (1978)]. It has been shown empirically that, in general, a positive relationship exists between the rate of price change and its predic- tability. This association, however, tends to break down when the sample is disaggregated into separate country groupings, or into groups determined by their average inflation rate. For example, Logue and Willett (1976) find that the relationship between the rate and variability of inflation is not statistically significant for industrial countries during the period 1950-1970. The purpose of this note is to employ recent data to investigate the relationship between the average rate of inflation and its variability across a large sample of countries. The time period chosen, the decade of the 1970s contains a wide variety of changes distinguishing it from the previous two post-war decades. During *The views expressed are those of the authors and may not represent those of the Federal Reserve Bank of St. Louis. We would like to thank Jim Lamb for his research assistance. The usual caveat applies. Journal of Macroeconomics, Fall 1981, Vol. 3, No. 4, pp. 571-577 571 Copyright 0 1982 by Wayne State University Press.