Testing for a time-varying price-cost markup in the Euro area inflation process

Christopher Bowdler and Eilev Jansen

University of California at San Diego, Economics Working Paper Series from Department of Economics, UC San Diego

Abstract: Empirical models of inflation often incorporate equilibrium correction effects based upon levels of prices and input costs. Such models assume that the steady-state price-cost markup is constant, but recent research suggests that this may not be true for the Euro area economy, which has undergone major structural reforms over the last 25 years. We allow for permanent shifts in the markup factor through estimating an inflation equation that includes a time-varying intercept. The model suggests that a reduction in the markup contributed to disinflation in the Euro area during the period 1981-2000.

Keywords: Inflation; price-cost markup; cointegration; time-varying intercept; dynamic modelling (search for similar items in EconPapers)
Date: 2004-05-01
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Testing for a time-varying price-cost markup in the Euro area inlation process (2004)
Working Paper: Testing for a time-varying price-cost markup in the Euro area inflation process (2004)
Working Paper: Testing for a time-varying price-cost markup in the Euro area inflation process (2004)
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