Abstract
AbstractCross‐country regressions explaining output growth often obtain a negative effect from inflation. However, that result is not robust, due to the selection of countries in sample, temporal aggregation, and omission of consequential variables in levels. This paper demonstrates some implications of these mis‐specifications, both analytically and empirically. In particular, for most G‐7 countries, annual time series of inflation and the log‐levelof output are cointegrated, thus rejecting the existence of a long‐run relation between outputgrowthand inflation. Typically, output and inflation are positively related in these cointegrating relationships: a price markup model helps to interpret this surprising feature. Copyright © 2001 John Wiley & Sons, Ltd.
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