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Has Greater Competition Restrained U.S. Inflation?

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  • John V. Duca
  • David D. VanHoose

Abstract

This paper shows how increased goods market competition affects the behavior of inflation in a multisector economy. By raising the price elasticity of demand, increased goods market competition theoretically lowers inflation and makes the aggregate price level less sensitive to aggregate demand shocks. We find that proxies for the aggregate degree of goods market competition are statistically and economically significant in short‐run Phillips curve models of core inflation. Evidence indicates that heightened goods market competition has flattened the slope of the short‐run, expectations‐augmented Phillips curve and slightly lowered the nonaccelerating inflation rate of unemployment (NAIRU).

Suggested Citation

  • John V. Duca & David D. VanHoose, 2000. "Has Greater Competition Restrained U.S. Inflation?," Southern Economic Journal, John Wiley & Sons, vol. 66(3), pages 729-741, January.
    • Handle: RePEc:wly:soecon:v:66:y:2000:i:3:p:729-741
    DOI: 10.1002/j.2325-8012.2000.tb00284.x
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    References listed on IDEAS

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    Cited by:

    1. Joseph Daniels & David VanHoose, 2009. "Trade Openness, Capital Mobility, and the Sacrifice Ratio," Open Economies Review, Springer, vol. 20(4), pages 473-487, September.
    2. Daniels, Joseph P. & Nourzad, Farrokh & VanHoose, David D., 2006. "Openness, centralized wage bargaining, and inflation," European Journal of Political Economy, Elsevier, vol. 22(4), pages 969-988, December.
    3. Khan, Hashmat, 2005. "Price-setting behaviour, competition, and markup shocks in the new Keynesian model," Economics Letters, Elsevier, vol. 87(3), pages 329-335, June.
    4. Duca, John V. & VanHoose, David D., 1998. "Goods-market competition and profit sharing: a multisector macro approach," Journal of Economics and Business, Elsevier, vol. 50(6), pages 525-534, November.
    5. Duca, John V. & Van Hoose, David D., 2001. "The Rise of Goods-Market Competition and the Fall of Nominal Wage Contracting: Endogenous Wage Contracting in a Multisector Economy," Journal of Macroeconomics, Elsevier, vol. 23(1), pages 1-29, January.
    6. Marina Marinkov & Philippe Burger, 2006. "The South African Phillips Curve: How Applicable is the Gordon Model?," Working Papers 038, Economic Research Southern Africa.

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