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Inflation and real sectoral output shares: Dynamic panel model evidence from seven OECD countries

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  • Davis, George K.
  • Hineline, David
  • Kanago, Bryce E.

Abstract

Models of the cost of inflation often conclude that inflation misallocates resources. For example, inflation may lead to an increase in the variability of relative prices and it is often claimed that this increase in variability leads to a misallocation of resources. This claim raises the following empirical question, does inflation alter the composition of real output; that is, does it change real output shares? We examine this question using dynamic panel data methods for nine sector panels each with seven OECD countries from 1970 to 2005. We find evidence that inflation changes the real shares of some sectors even when inflation is treated as endogenous.

Suggested Citation

  • Davis, George K. & Hineline, David & Kanago, Bryce E., 2011. "Inflation and real sectoral output shares: Dynamic panel model evidence from seven OECD countries," Journal of Macroeconomics, Elsevier, vol. 33(4), pages 607-619.
    • Handle: RePEc:eee:jmacro:v:33:y:2011:i:4:p:607-619
    DOI: 10.1016/j.jmacro.2011.06.002
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    Cited by:

    1. Nagayasu, Jun, 2012. "Regional inflation and industrial structure in monetary union," MPRA Paper 37310, University Library of Munich, Germany.

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    More about this item

    Keywords

    Costs of inflation; Relative-price variability; Misallocation of resources; Sectoral output shares;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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