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The Long-Run Relationship Between Inflation and the Markup in the U.S

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  • Sandeep Mazumder

    ()
    (Wake Forest University)

Abstract

This paper examines the long-run relationship between inflation and a new measure of the price-marginal cost markup. This new markup index is derived while accounting for labor adjustment costs, which a large number of the papers that estimate the markup have ignored. We then examine the long-run relationship between this markup measure, which is estimated using U.S. manufacturing data, and inflation. We find that decreases in the markup that are associated with a percentage point increase in inflation are much smaller than previous studies have found.

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File URL: http://www.accessecon.com/Pubs/EB/2011/Volume31/EB-11-V31-I1-P46.pdf
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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 31 (2011)
Issue (Month): 1 ()
Pages: 473-484

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Handle: RePEc:ebl:ecbull:eb-10-00523

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Keywords: Markup; Inflation; Marginal Cost.;

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  1. James H. Stock & Mark W. Watson, 1991. "A simple estimator of cointegrating vectors in higher order integrated systems," Working Paper Series, Macroeconomic Issues 91-3, Federal Reserve Bank of Chicago.
  2. Mazumder, Sandeep, 2010. "The new Keynesian Phillips curve and the cyclicality of marginal cost," Journal of Macroeconomics, Elsevier, vol. 32(3), pages 747-765, September.
  3. Robert E. Hall, 1986. "The Relation Between Price and Marginal Cost in U.S. Industry," NBER Working Papers 1785, National Bureau of Economic Research, Inc.
  4. Bill Russell & Jonathan Evans & Bruce Preston, . "The Impact Of Inflation and Uncertainty On The Optimum Price Set By Firms," Dundee Discussion Papers in Economics 084, Economic Studies, University of Dundee.
  5. Stock, James H, 1987. "Asymptotic Properties of Least Squares Estimators of Cointegrating Vectors," Econometrica, Econometric Society, vol. 55(5), pages 1035-56, September.
  6. Anindya Banerjee & Bill Russell, 2002. "Inflation and Measures of the Markup," Dundee Discussion Papers in Economics 130, Economic Studies, University of Dundee.
  7. Ian Domowitz & R. Glenn Hubbard & Bruce C. Petersen, 1986. "Market Structure and Cyclical Fluctuations in U.S. Manufacturing," NBER Working Papers 2115, National Bureau of Economic Research, Inc.
  8. Robert E. Hall, 1986. "Market Structure and Macroeconomic Fluctuations," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 17(2), pages 285-338.
  9. Mazumder, Sandeep, 2009. "The Price-Marginal Cost Markup and its Determinants in U.S. Manufacturing," MPRA Paper 17260, University Library of Munich, Germany.
  10. Bils, Mark, 1987. "The Cyclical Behavior of Marginal Cost and Price," American Economic Review, American Economic Association, vol. 77(5), pages 838-55, December.
  11. Yu-Fu CHEN & Bill RUSSELL, 2002. "An Optimising Model of Price Adjustment with Missing Information," Economics Working Papers ECO2002/03, European University Institute.
  12. Walter Y. Oi, 1962. "Labor as a Quasi-Fixed Factor," Journal of Political Economy, University of Chicago Press, vol. 70, pages 538.
  13. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, vol. 64(4), pages 813-36, July.
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