Testing for a time-varying price-cost markup in the Euro area inlation process
AbstractEmpirical models of inflation often incorporate equilibrium correction effects based upon levels of prices and input costs. Such models assume that the steady-state price-cost markup is constant, but recent research suggests that this may not be true for the Euro area economy, which has undergone major structural reforms over the last 25 years. We allow for permanent shifts in the markup factor through estimating an inflation equation that includes a time-varying intercept. The model suggests that a reduction in the markup contributed to disinflation in the Euro area during the period 1981-2000.
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Bibliographic InfoPaper provided by Norges Bank in its series Working Paper with number 2004/9.
Length: 19 pages
Date of creation: 28 May 2004
Date of revision:
Note: This is a revised version of ECB Working Paper 306 (Bowdler and Jansen (2004)), which was written while the second author was a Research Visitor to DG Research, European Central Bank, Frankfurt, from February through June 2003. The work benefitted greatly from a one week visit from the first author to the same institution in May 2003. The first author acknowledges financial support from a British Academy post-doctoral fellowship. The revision has been carried out while the second author was visiting Department of Economics, University of California San Diego. The hospitality and excellent working conditions o ered there are gratefully acknowledged. We are also grateful for the constructive criticism provided by an anonymous ECB referee, and for comments from James Hamilton, Heino Bohn Nielsen and seminar participants at Norges Bank, University of California San Diego and Brunel University. The views expressed in this paper represent exclusively the views of the authors and do not necessarily reflect those of the European Central Bank or Norges Bank.
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inflation; price-cost markup; cointegration; time-varying intercept; dynamic modelling.;
Other versions of this item:
- Christopher Bowdler & Eilev S. Jansen, 2004. "Testing for a time-varying price-cost markup in the Euro area inflation process," Economics Papers 2004-W10, Economics Group, Nuffield College, University of Oxford.
- Christopher Bowdler & Eilev S. Jansen, 2004. "Testing for a time-varying price-cost markup in the Euro area inflation process," Working Paper Series 4004, Department of Economics, Norwegian University of Science and Technology, revised 11 May 2004.
- Christopher Bowdler & Eilev S. Jansen, 2004. "Testing for a time-varying price-cost markup in the Euro area inflation process," Economics Series Working Papers 2004-W10, University of Oxford, Department of Economics.
- Bowdler, Christopher & Jansen, Eilev S., 2004. "Testing for a time-varying price-cost markup in the Euro area inflation process," University of California at San Diego, Economics Working Paper Series qt4s75w541, Department of Economics, UC San Diego.
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-07-11 (All new papers)
- NEP-EEC-2004-07-11 (European Economics)
- NEP-MAC-2004-07-11 (Macroeconomics)
- NEP-MON-2004-07-11 (Monetary Economics)
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