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The markup and inflation: evidence in OECD countries

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  • Katharine S. Neiss

Abstract

In this paper we evaluate the dynamic inconsistency argument put forth by Kydland and Prescott (1977) and Barro and Gordon (1983) as an explanation for differences in the average inflation experience across OECD countries. The focus is on the empirical evidence relating the overall degree of competition among firms, as measured by the markup of price over marginal cost, and inflation over the 1973-88 period. The prediction is that higher markups raise the monetary authority's incentive to increase output, leading to higher equilibrium rates of inflation. We find that the markup does well in explaining cross-country differences in average inflation.

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Bibliographic Info

Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 34 (2001)
Issue (Month): 2 (May)
Pages: 570-587

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Handle: RePEc:cje:issued:v:34:y:2001:i:2:p:570-587

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Cited by:
  1. Giovanni Lombardo, . "Sticky Prices, Markup and the Business Cycle: Some Evidence," Discussion Papers 01/06, Department of Economics, University of York.
  2. Bucci Alberto, 2008. "Competition and R&D investment in human capital-driven growth," Politica economica, Società editrice il Mulino, issue 2, pages 235.
  3. Mahir Binici & Yin-Wong Cheung & Kon S. Lai, 2011. "Trade Openness, Market Competition, and Inflation: Some Sectoral Evidence from OECD Countries," CESifo Working Paper Series 3690, CESifo Group Munich.
  4. Laurent Maurin & Moreno Roma & Igor Vetlov, 2011. "Profit dynamics across the largest euro area countries and sectors," Working Paper Series 1410, European Central Bank.
  5. Schiantarelli, Fabio, 2005. "Product market regulation and macroeconomic performance : a review of cross-country evidence," Policy Research Working Paper Series 3770, The World Bank.
  6. Asli Gunay & Kivilcim Metin-Ozcan & Erinc Yeldan, 2005. "Real wages, profit margins and inflation in Turkish manufacturing under post-liberalization," Applied Economics, Taylor and Francis Journals, vol. 37(16), pages 1899-1905.
  7. Bucci, Alberto & Parello, Carmelo Pierpaolo, 2009. "Horizontal innovation-based growth and product market competition," Economic Modelling, Elsevier, vol. 26(1), pages 213-221, January.
  8. Xin Long & Alessandra Pelloni, 2012. "Welfare Improving Taxation on Savings in a Growth Model," CEIS Research Paper 218, Tor Vergata University, CEIS, revised 27 Jan 2012.
  9. Ad van Riet & Moreno Roma, 2006. "Competition, productivity and prices in the euro area services sector," Occasional Paper Series 44, European Central Bank.
  10. Gabriele Galati & William R. Melick, 2006. "The evolving inflation process: an overview," BIS Working Papers 196, Bank for International Settlements.
  11. Liew, Freddy, 2012. "Forecasting inflation in Asian economies," MPRA Paper 36781, University Library of Munich, Germany.
  12. Alberto Bucci, 2005. "Product Market Competition, R&D Effort and Economic Growth," UNIMI - Research Papers in Economics, Business, and Statistics unimi-1011, Universitá degli Studi di Milano.
  13. Nir Klein, 2011. "South Africa: The Cyclical Behavior of the Markups and its Implications for Monetary Policy," IMF Working Papers 11/204, International Monetary Fund.
  14. Jonsson, Magnus & Palmqvist, Stefan, 2003. "Inflation, Markups and Monetary Policy," Working Paper Series 148, Sveriges Riksbank (Central Bank of Sweden).

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