Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153294
Authors: 
Sánchez, Marcelo
Year of Publication: 
2008
Series/Report no.: 
ECB Working Paper 860
Abstract: 
This paper estimates a linearised DSGE model for the euro area. The model is New Keynesian and allows for a role for oil usage and endogenous price markups. We find that the price markup reacts positively to the ratio of expected discounted profits to current output, which is normally seen to give rise to a "countercyclical" markup. The importance of shocks to monetary policy and oil prices is estimated to have declined in the post-1990 period, in line with the higher predictability of policy and the fall in the persistence and - to a lesser extent - variability of oil disturbances. Counterfactual exercises show that oil efficiency gains would alleviate the inflationary and contractionary consequences of oil shocks, while higher wage flexibility would help ease the impact on real output at the expense of wider fluctuations in inflation. Finally, the rise in price markups induced by an oil disturbance is not found to considerably amplify the inflationary and contractionary effects of the shock.
Subjects: 
endogenous markup
estimated DSGE models
euro area
oil shocks
JEL: 
C15
E31
E32
E37
Document Type: 
Working Paper

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