Inflation and the Markup in the Euro Area

51 Pages Posted: 19 Dec 2010

See all articles by Catherine Bruneau

Catherine Bruneau

Université Paris X Nanterre; Université Paris I Panthéon-Sorbonne

Olivier de Bandt

Banque de France - Economic Study and Research Division

Alexis Flageollet

NATIXIS Asset Management

Date Written: September 2004

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 te mid 1980s. We observe that the markup is 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

JEL Classification: C33, C53, E37

Suggested Citation

Bruneau, Catherine and de Bandt, Olivier and Flageollet, Alexis, Inflation and the Markup in the Euro Area (September 2004). Banque de France Working Paper No. 114, Available at SSRN: https://ssrn.com/abstract=1727270 or http://dx.doi.org/10.2139/ssrn.1727270

Catherine Bruneau (Contact Author)

Université Paris X Nanterre ( email )

Room G301, Building G
92001 Nanterre Cedex, 92001
France

Université Paris I Panthéon-Sorbonne ( email )

17, rue de la Sorbonne
Paris, IL 75005
France

Olivier De Bandt

Banque de France - Economic Study and Research Division ( email )

31, rue Croix des Petits Champs
75049 Paris Cedex 01
FRANCE
(33 1) 42 92 28 80 (Phone)
(33 1) 42 92 27 66 (Fax)

Alexis Flageollet

NATIXIS Asset Management ( email )

21 Quai d'Austerlitz
Paris, 75013
France

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