Output and Inflation in the Long Run
Neil Ericsson (),
John S. Irons () and
Ralph W. Tryon ()
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John S. Irons: Amherst College
Ralph W. Tryon: Federal Reserve Board
No 2000.01, Amherst Economic Papers from Amherst College, Department of Economics
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.
Keywords: cointegration; cross-country regression; economic growth; inflation; long run; output (search for similar items in EconPapers)
JEL-codes: F43 E3 (search for similar items in EconPapers)
Date: 2000-10-24, Revised 2000-10-24
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Forthcoming, Journal of Applied Econometrics
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Journal Article: Output and inflation in the long run (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:aep:acewpa:2000.01
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