Date Added: Jan 2011
This paper examines the long-run relationship between inflation and a new measure of the price-marginal cost markup. This new markup index is derived while accounting for labor adjustment costs, which a large number of the papers that estimate the markup have ignored. The authors then examine the long-run relationship between this markup measure, which is estimated using U.S. manufacturing data, and inflation. They find that decreases in the markup that are associated with a percentage point increase in inflation are much smaller than previous studies have found.