Download This PaperInflation and the Markup in the Euro Area
51 Pages Posted: 19 Dec 2010
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: Suggested Citation
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