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Testing for a time-varying price-cost markup in the Euro area inflation process

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Author Info
Christopher Bowdler () (Economics Group, Nuffield College, Oxford University)
Eilev S. Jansen () (Bank of Norway and Department of Economics, Norwegian University of Science and Technology)

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Abstract

Empirical 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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File URL: http://www.svt.ntnu.no/iso/WP/2004/5markupinflationwpano_11may04.pdf
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Publisher Info
Paper provided by Department of Economics, Norwegian University of Science and Technology in its series Working Paper Series with number 4004.

Download reference. The following formats are available: HTML, plain text, BibTeX, RIS (EndNote), ReDIF
Length: 18 pages
Date of creation: 01 Feb 2004
Date of revision: 11 May 2004
Handle: RePEc:nst:samfok:4004

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Related research
Keywords: inflation price-cost markup cointegration time-varying intercept dynamic modelling.

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Find related papers by JEL classification:
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

References listed on IDEAS
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    Other versions:
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