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Non-Stationary Inflation and the Markup: an Overview of the Research and some Implications for Policy

Bill Russell ()

No 191, Dundee Discussion Papers in Economics from Economic Studies, University of Dundee

Abstract: This paper reports on research into the negative relationship between inflation and the markup. It is argued that this relationship can be thought of as ‘long-run’ in nature which suggests that inflation has a persistent effect on the markup and, therefore, the real wage. A ‘rule of thumb’ from the estimates indicate that a 10 percentage point increase in inflation (as occurred worldwide in the 1970s) is associated with around a 7 per cent fall in the markup accompanied by a similar increase in the real wage. It is argued that movements of this magnitude in the markup and the real wage will have important implications for a range of economic outcomes such as unemployment, employment and investment.

Keywords: Inflation; Wages; Prices; Markup; Monetary Policy; Competition (search for similar items in EconPapers)
JEL-codes: C22 C32 C52 E24 E31 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2006-08
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9) Track citations by RSS feed

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