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The markup and inflation: evidence in OECD countries

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  • Katharine S. Neiss

Abstract

In this paper we evaluate the dynamic inconsistency argument put forth by Kydland and Prescott (1977) and Barro and Gordon (1983) as an explanation for differences in the average inflation experience across OECD countries. The focus is on the empirical evidence relating the overall degree of competition among firms, as measured by the markup of price over marginal cost, and inflation over the 1973-88 period. The prediction is that higher markups raise the monetary authority's incentive to increase output, leading to higher equilibrium rates of inflation. We find that the markup does well in explaining cross-country differences in average inflation.

Suggested Citation

  • 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.
    • Handle: RePEc:cje:issued:v:34:y:2001:i:2:p:570-587
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    Citations

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    Cited by:

    1. Long, Xin & Pelloni, Alessandra, 2017. "Factor income taxation in a horizontal innovation model," Journal of Public Economics, Elsevier, vol. 154(C), pages 137-159.
    2. Giovanni Lombardo, "undated". "Sticky Prices, Markup and the Business Cycle: Some Evidence," Discussion Papers 01/06, Department of Economics, University of York.
    3. Joseph Daniels & Sandeep Mazumder & David VanHoose, 2015. "Implications of Globalization for the Output-inflation Relationship: an Assessment," Open Economies Review, Springer, vol. 26(1), pages 39-60, February.
    4. repec:mul:je8794:doi:10.1429/27918:y:2008:i:2:p:235 is not listed on IDEAS
    5. Mahir Binici & Yin-Wong Cheung & Kon S. Lai, 2011. "Trade Openness, Market Competition, and Inflation: Some Sectoral Evidence from OECD Countries," CESifo Working Paper Series 3690, CESifo.
    6. Emanuele Deligia, 2006. "Innovation And Finance: The Theoretical Links," Economia, Societa', e Istituzioni, Dipartimento di Economia e Finanza, LUISS Guido Carli, vol. 0(1).
    7. Laurent Maurin & Moreno Roma & Igor Vetlov, 2011. "Profit Dynamics across the Largest Euro Area countries and Sectors," Bank of Lithuania Working Paper Series 12, Bank of Lithuania.
    8. Emna Trabelsi, 2016. "Transparency on inflation of OECD countries? An Application of LSDVC Estimator on a dynamic Panel Model," Economics Bulletin, AccessEcon, vol. 36(2), pages 1095-1126.
    9. Fabio Schiantarelli, 2005. "Product Market Regulation and Macroeconomic Performance: A Review of Cross Country Evidence," Boston College Working Papers in Economics 623, Boston College Department of Economics, revised 04 Aug 2008.
    10. Asli Gunay & Kivilcim Metin-Ozcan & Erinc Yeldan, 2005. "Real wages, profit margins and inflation in Turkish manufacturing under post-liberalization," Applied Economics, Taylor & Francis Journals, vol. 37(16), pages 1899-1905.
    11. Bucci, Alberto & Parello, Carmelo Pierpaolo, 2009. "Horizontal innovation-based growth and product market competition," Economic Modelling, Elsevier, vol. 26(1), pages 213-221, January.
    12. Long Xin & Pelloni Alessandra, 2011. "Welfare improving taxation on savings in a growth model," wp.comunite 0091, Department of Communication, University of Teramo.
    13. Ad van Riet & Moreno Roma, 2006. "Competition, productivity and prices in the euro area services sector," Occasional Paper Series 44, European Central Bank.
    14. Alf Vanags & Morten Hansen, 2007. "Competition in the Latvian and Baltic Grocery Retail Markets," SSE Riga/BICEPS Occasional Papers 3, Baltic International Centre for Economic Policy Studies (BICEPS);Stockholm School of Economics in Riga (SSE Riga).
    15. Gabriele Galati & William R. Melick, 2006. "The evolving inflation process: an overview," BIS Working Papers 196, Bank for International Settlements.
    16. Daniels, Joseph P. & VanHoose, David D., 2013. "Exchange-rate pass through, openness, and the sacrifice ratio," Journal of International Money and Finance, Elsevier, vol. 36(C), pages 131-150.
    17. Liew, Freddy, 2012. "Forecasting inflation in Asian economies," MPRA Paper 36781, University Library of Munich, Germany.
    18. Alberto Bucci, 2005. "Product Market Competition, R&D Effort and Economic Growth," UNIMI - Research Papers in Economics, Business, and Statistics unimi-1011, Universitá degli Studi di Milano.
    19. Klachkova, Olga A. (Клачкова, Ольга), 2017. "Modelling the Impact of Inflation on Economic Growth for Countries with Different Levels of Economic Freedom [Влияние Инфляции На Экономический Рост В Зависимости От Уровня Экономической Свободы Ст," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 5, pages 22-41, October.
    20. Michael Bradfield, 2007. "The Kinked Demand Curve with a Conjectural Hitch – A Micro Extension with Macro Implications," Working Papers daleconwp2007-05, Dalhousie University, Department of Economics.
    21. Monica Correa Lopez & Agustin Garcia Serrador & Ana Cristina Mingorance, 2010. "Product Market Competition and Inflation Dynamics: Evidence from a Panel of OECD Countries," Working Papers 1025, BBVA Bank, Economic Research Department.
    22. 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.
    23. Alberto Bucci, 2008. "Competition and R&D investment in human capital-driven growth," Politica economica, Società editrice il Mulino, issue 2, pages 235-265.
    24. Pym Manopimoke & Wanicha Direkudomsak, 2015. "Thai Inflation Dynamics in a Globalized Economy," PIER Discussion Papers 11., Puey Ungphakorn Institute for Economic Research, revised Nov 2015.
    25. Jonsson, Magnus & Palmqvist, Stefan, 2003. "Inflation, Markups and Monetary Policy," Working Paper Series 148, Sveriges Riksbank (Central Bank of Sweden).

    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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