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

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  • Bill Russell

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.

Suggested Citation

  • Bill Russell, 2006. "Non-Stationary Inflation and the Markup: an Overview of the Research and some Implications for Policy," Dundee Discussion Papers in Economics 191, Economic Studies, University of Dundee.
    • Handle: RePEc:dun:dpaper:191
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    File URL: http://www.dundee.ac.uk/media/dundeewebsite/economicstudies/documents/discussion/DDPE_191.pdf
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    References listed on IDEAS

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    22. Russell, B., 1996. "The Non-Linear Long-Run Phillips Curve: Implications for Monetary Policy," Economics Series Working Papers 99182, University of Oxford, Department of Economics.
    23. Yu-Fu CHEN & Bill RUSSELL, 2002. "An Optimising Model of Price Adjustment with Missing Information," Economics Working Papers ECO2002/03, European University Institute.
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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Bill Russell, 2014. "ARCH and structural breaks in United States inflation," Applied Economics Letters, Taylor & Francis Journals, vol. 21(14), pages 973-978, September.
    2. Russell, Bill & Chowdhury, Rosen Azad, 2013. "Estimating United States Phillips curves with expectations consistent with the statistical process of inflation," Journal of Macroeconomics, Elsevier, vol. 35(C), pages 24-38.
    3. Russell, Bill & Banerjee, Anindya, 2008. "The long-run Phillips curve and non-stationary inflation," Journal of Macroeconomics, Elsevier, vol. 30(4), pages 1792-1815, December.
    4. Russell, Bill, 2011. "Non-stationary inflation and panel estimates of United States short and long-run Phillips curves," Journal of Macroeconomics, Elsevier, vol. 33(3), pages 406-419, September.
    5. Bill Russell & Anindya Banerjee & Issam Malki & Natalia Ponomareva, 2010. "A Multiple Break Panel Approach To Estimating United States Phillips Curves," Dundee Discussion Papers in Economics 232, Economic Studies, University of Dundee.

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    More about this item

    Keywords

    Inflation; Wages; Prices; Markup; Monetary Policy; Competition;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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