A mark-up model of inflation for the euro area

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A mark-up model of inflation for the euro area

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Christopher Bowdler () (Nuffield College, New Road Oxford OX1 1NF, United Kingdom)
Eilev S. Jansen

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Abstract

Equilibrium correction models of the price level are often used to model inflation. Such models assume that the long-run markup of prices over costs is fixed, but this may not be true for the Euro area economy, which has undergone major structural reforms over the last 25 years. We allow for shifts in the markup factor through estimating an equation that includes a timevarying intercept. The model fits the data better than a linear alternative, and suggests that a reduction in the price-cost markup contributed to disinflation in the Euro area during the 1980s.

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Paper provided by European Central Bank in its series Working Paper Series with number 306.

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Length: 36 pages
Date of creation: Feb 2004
Date of revision:
Handle: RePEc:ecb:ecbwps:20040306

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Find related papers by JEL classification:
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
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-2005-10-04 (All new papers)
NEP-EEC-2005-10-04 (European Economics)
NEP-MAC-2005-10-04 (Macroeconomics)
NEP-MON-2005-10-04 (Monetary Economics)

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Fielding, David & Stracca, Livio, 2007. "Myopic loss aversion, disappointment aversion, and the equity premium puzzle," Journal of Economic Behavior & Organization, Elsevier, vol. 64(2), pages 250-268, October. [Downloadable!] (restricted)
Other versions:
- Livio Stracca & David Fielding, 2003. "Myopic loss aversion; disappointment aversion; and the equity premium puzzle," Working Paper Series 203, European Central Bank. [Downloadable!]
Alessandro Calza & Joao Sousa & Marta Manrique Simon, 2003. "Aggregate loans to the euro area private sector," Working Paper Series 202, European Central Bank. [Downloadable!]
Inoue, Atsushi & Kilian, Lutz, 2003. "On the Selection of Forecasting Models," CEPR Discussion Papers 3809, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
Other versions:
- Lutz Kilian & Atsushi Inoue, 2003. "On the selection of forecasting models," Working Paper Series 214, European Central Bank. [Downloadable!]
- Inoue, Atsushi & Kilian, Lutz, 2006. "On the selection of forecasting models," Journal of Econometrics, Elsevier, vol. 130(2), pages 273-306, February. [Downloadable!] (restricted)

Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

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. [Downloadable!]
Melisso Boschi & Alessandro Girardi, 2005. "Euro Area inflation: long-run determinants and short-run dynamics," ISAE Working Papers 60, ISAE - Institute for Studies and Economic Analyses - (Rome, ITALY). [Downloadable!]
Other versions:
- Melisso Boschi & Alessandro Girardi, 2007. "Euro area inflation: long-run determinants and short-run dynamics," Applied Financial Economics, Taylor and Francis Journals, vol. 17(1), pages 9-24, January. [Downloadable!] (restricted)
Rebeca Albacete & Antoni Espasa, 2005. "Forecasting Inflation In The Euro Area Using Monthly Time Series Models And Quarterly Econometric Models," Statistics and Econometrics Working Papers ws050401, Universidad Carlos III, Departamento de Estadística y Econometría. [Downloadable!]
Jennifer L. Castle & David F. Hendry, 2007. "Forecasting UK Inflation: the Roles of Structural Breaks and Time Disaggregation," Economics Series Working Papers 309, University of Oxford, Department of Economics. [Downloadable!]
Eilev S. Jansen, 2004. "Modelling inflation in the Euro Area," Working Paper 2004/10, Norges Bank. [Downloadable!]
Other versions:
- Eilev S. Jansen, 2004. "Modelling inflation in the Euro Area," Working Paper Series 4104, Department of Economics, Norwegian University of Science and Technology, revised 01 Jun 2004. [Downloadable!]
- Eilev S. Jansen, 2004. "Modelling inflation in the euro area," Working Paper Series 322, European Central Bank. [Downloadable!]
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. [Downloadable!]
Other versions:
- Christopher Bowdler & Eilev S. Jansen, 2004. "Testing for a time-varying price-cost markup in the Euro area inlation process," Working Paper 2004/9, Norges Bank. [Downloadable!]
- Christopher Bowdler & Eilev Jansen, 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 2004-07, Department of Economics, UC San Diego. [Downloadable!]

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