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  • Nir Klein
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    Abstract

    The study looks at the cyclical behavior of the markups and assesses its impact on inflation dynamics. The analysis finds that the aggregate level of the private sector''s markup is relatively high, thus pointing to the lack of strong competition in South Africa''s product markets. Additionally, the results suggest that the markups tend to move in a countercyclical manner, with a short-term positive impact on inflation. This implies that the countercyclical pattern of the markups is one factor among others that contribute to the relatively weak output gap-inflation co-movement. In the context of South Africa''s inflation targeting framework, the counter-cyclical markups may also generate an asymmetric response of monetary policy to the fluctuations in economic activity.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/204.

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    Length: 22
    Date of creation: 01 Aug 2011
    Date of revision:
    Handle: RePEc:imf:imfwpa:11/204

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    Related research

    Keywords: Global competitiveness; Manufacturing sector; Production; Productivity; inflation; monetary policy; gdp deflator; monetary economics; inflation targeting framework; inflation targeting; monetary fund; aggregate demand; real wages; inflation dynamics; inflationary pressures; inflation process; inflation rate; rates of inflation; moderate inflation; monetary authorities; real value; inflation equation; macroeconomic analysis;

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    References

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    1. Jón Steinsson, 2000. "Optimal monetary policy in an economy with inflation persistence," Economics wp11, Department of Economics, Central bank of Iceland.
    2. 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.
    3. Machin, Stephen & Van Reenen, John, 1993. "Profit Margins and the Business Cycle: Evidence from UK Manufacturing Firms," Journal of Industrial Economics, Wiley Blackwell, vol. 41(1), pages 29-50, March.
    4. Johannes Fedderke & Chandana Kularatne & Martine Mariotti, 2007. "Mark-up Pricing in South African Industry," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 16(1), pages 28-69, January.
    5. Robert S. Chirinko & Steven M. Fazzari, 2000. "Market Power and Inflation," CESifo Working Paper Series 277, CESifo Group Munich.
    6. Aghion, Philippe & Braun, Matias & Fedderke, Johannes, 2008. "Competition and Productivity Growth in South Africa," Scholarly Articles 3350068, Harvard University Department of Economics.
    7. Gottfries, Nils, 1991. "Customer Markets, Credit Market Imperfections and Real Price Rigidity," Economica, London School of Economics and Political Science, vol. 58(231), pages 317-23, August.
    8. Johannes Fedderke & Gabor Szalontai, 2005. "Industry Concentration in South African Manufacturing Industry: Trends and Consequences, 1972-96," Working Papers 23, Economic Research Southern Africa.
    9. Benabou, Roland, 1992. "Inflation and markups : Theories and evidence from the retail trade sector," European Economic Review, Elsevier, vol. 36(2-3), pages 566-574, April.
    10. Banerjee, Anindya & Russell, Bill, 2005. "Inflation and measures of the markup," Journal of Macroeconomics, Elsevier, vol. 27(2), pages 289-306, June.
    11. Haskel, Jonathan & Martin, Christopher & Small, Ian, 1995. "Price, Marginal Cost and the Business Cycle," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 57(1), pages 25-41, February.
    12. Macallan, Clare & Millard, Stephen & Parker, Miles, 2008. "The cyclicality of mark-ups and profit margins for the United Kingdom: some new evidence," Bank of England working papers 351, Bank of England.
    13. Katharine S. Neiss, 2001. "The markup and inflation: evidence in OECD countries," Canadian Journal of Economics, Canadian Economics Association, vol. 34(2), pages 570-587, May.
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    Cited by:
    1. Liew, Freddy, 2012. "Forecasting inflation in Asian economies," MPRA Paper 36781, University Library of Munich, Germany.

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