Domestic and Foreign Effects on Prices in an Open EconomyNo 91-05, Discussion Papers from University of Copenhagen. Department of Economics Abstract: The domestic price determination in Denmark is investigated based on three kinds of macro economic explanations: (i) internal labour market theories, describing the relation between price and wage inflation, (ii) pure monetarist theories, describing the effect of excess money on the inflation rate, and finally (iii) external theories, describing the foreign transmission effects on a small open economy. The empirical analysis makes use of the multivariate cointegration model which is based on the joint analysis of long and short run behaviour. The deviations from derived underlying steady-states in each sector were found to be the main determinants to the inflation rate. Among these the domestic effects were small compared to the foreign effects. The empirical results strongly favoured a backward looking behavioural model in terms of structurally stable parameters as opposed to a forward expectations model. The results stand up as quite strong evidence against the famous Lucas' critique. Keywords: monetary growth models; open economy; Denmark; prices (search for similar items in EconPapers) Published in: Neil R Ericsson and John S. Irons, eds., Testing Exogeneity. Oxford University Press, 1994, pp 161-190 There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: http://EconPapers.repec.org/RePEc:kud:kuiedp:9105 Ordering information: This working paper can be ordered from Access Statistics for this paper More papers in Discussion Papers from University of Copenhagen. Department of Economics |
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