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Output and Inflation in the Long Run

Author

Listed:
  • Neil R. Ericsson

    () (Federal Reserve Board)

  • John S. Irons

    () (Amherst College)

  • Ralph W. Tryon

    () (Federal Reserve Board)

Abstract

Cross-country regressions explaining output growth often obtain a negative effect from inflation. However, that result is not robust, due to the selection of countries in sample, temporal aggregation, and omission of consequential variables in levels. This paper demonstrates some implications of these mis-specifications, both analytically and empirically. In particular, for most G-7 countries, annual time series of inflation and the log-level of output are cointegrated, thus rejecting the existence of a long-run relation between output growth and inflation. Output and inflation are positively related in these cointegrating relationships: a price markup model helps interpret this surprising feature.

Suggested Citation

  • Neil R. Ericsson & John S. Irons & Ralph W. Tryon, 2000. "Output and Inflation in the Long Run," Amherst Economic Papers 2000.01, Amherst College, Department of Economics, revised 24 Oct 2000.
  • Handle: RePEc:aep:acewpa:2000.01
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    cointegration; cross-country regression; economic growth; inflation; long run; output;

    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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