Using annual US data for gross domestic product originating by sector between 1947 and 1997 it is shown that a negative long-run relationship between inflation and the markup is present across the sectors as well as in the aggregate. A preliminary explanation based on indutry structure is...

This paper considers a sticky price model with a cash-in-advance constraint where agents forecast inflation rates by fitting econometric models to data. Agents are uncertain about which model to fit and can choose from a class of models. Only some of the models in this class are consistent with...

We analyze the impact of electronic money competition on policy outcomes. We consider di®erent assumptions regarding the objectives of the central bank and its ability to commit to future policies. Electronic money competition can discipline a revenue maximizing government and result in lower...

In this paper we examine some of the issues which will arise if the European Central Bank adopts "direct inflation" targeting after the adoption of the single currency in Europe. One issue is how big the deviations in national inflation rates form the European average might be. Another is the...

A fresh interpretaion is provided of the influential finding that the markup of prices over marginal costs is counter-cyclical. Using Rotemberg and Woodford's data set we argue that the markup is best modelled as a variable that is integrated of order one. A consequence of this finding is that...

An I(2) analysis of inflation and the markup is undertaken for the G7 economies and Australia. We find that the levels of prices and costs are best described as I(2) processes and that except for Japan a linear combination of the log levels or prices and costs cointegrate to the markup that is...