Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/152740
Authors: 
Bowdler, Christopher
Jansen, Eilev S.
Year of Publication: 
2004
Series/Report no.: 
ECB Working Paper 306
Abstract: 
Equilibrium correction models of the price level are often used to model inflation. Such models assume that the long-run markup of prices over costs is fixed, but this may not be true for the Euro area economy, which has undergone major structural reforms over the last 25 years. We allow for shifts in the markup factor through estimating an equation that includes a timevarying intercept. The model fits the data better than a linear alternative, and suggests that a reduction in the price-cost markup contributed to disinflation in the Euro area during the 1980s.
Subjects: 
cointegration
dynamic modelling
inflation
price-cost markup
time-varying intercept
JEL: 
C22
C32
E31
Document Type: 
Working Paper

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