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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

    ()
    (Nuffield College, Oxford University, UK)

  • Eilev S. Jansen

    (Norges Bank and Norwegian University of Science and Technology)

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.nuff.ox.ac.uk/economics/papers/2004/w10/markupinflation30april04.pdf
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Bibliographic Info

Paper provided by Economics Group, Nuffield College, University of Oxford in its series Economics Papers with number 2004-W10.

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Length: 18 pages
Date of creation: 30 Apr 2004
Date of revision:
Handle: RePEc:nuf:econwp:0410

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Web page: http://www.nuff.ox.ac.uk/economics/

Related research

Keywords: Inflation; price-cost markup; cointegration; time-varying intercept; dynamic modelling.;

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References

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Cited by:
  1. 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.
  2. Nir Klein, 2011. "South Africa: The Cyclical Behavior of the Markups and its Implications for Monetary Policy," IMF Working Papers 11/204, International Monetary Fund.

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