Inflation and the Markup in the Euro Area

C. Bruneau, Olivier de Bandt and A. Flageollet

Working papers from Banque de France

Abstract: The paper implements a consistent empirical strategy in order to investigate the behaviour of the markup over the cycle and its contribution to inflation movements. We model the price series as I(2) components and use polynomial cointegration in order to recover a long-run price schedule. We do not reject statistically the reduction of the I(2) framework to an I(1) model as from the mid 1980s. We observe that the markup in fairly counter-cyclical and has a permanent effect on inflation through an error-correcting mechanism. Structural and forecasting equations exhibiting good performance are therefore estimated.

Keywords: Inflation; euro area; Markup model; I(2) models; Cointegration (search for similar items in EconPapers)
JEL-codes: C33 C53 E37 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2004
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:114

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