Output and Inflation in the Long Run

24 Pages Posted: 18 Jan 2001

See all articles by Neil R. Ericsson

Neil R. Ericsson

Board of Governors of the Federal Reserve System

John S. Irons

Amherst College - Department of Economics

Ralph W. Tryon

Board of Governors of the Federal Reserve System

Date Written: November 2000

Abstract

Cross-country regressions explaining output growth often obtain a negative effect from inflation. However, that result is not robust, due to the selection of countries in sample, temporal aggregation, and omission of consequential variables in levels. This paper demonstrates some implications of these mis-specifications, both analytically and empirically. In particular, for most G-7 countries, annual time series of inflation and the log-level of output are cointegrated, thus rejecting the existence of a long-run relation between output growth and inflation. Typically, output and inflation are positively related in these cointegrating relationships: a price markup model helps interpret this surprising feature.

Keywords: Cointegration, Cross-Country Regression, Economic Growth, Inflation, Long Run, Output

Suggested Citation

Ericsson, Neil R. and Irons, John S. and Tryon, Ralph, Output and Inflation in the Long Run (November 2000). Available at SSRN: https://ssrn.com/abstract=255462 or http://dx.doi.org/10.2139/ssrn.255462

Neil R. Ericsson (Contact Author)

Board of Governors of the Federal Reserve System ( email )

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John S. Irons

Amherst College - Department of Economics ( email )

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Ralph Tryon

Board of Governors of the Federal Reserve System ( email )

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