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PRICE AND WAGE STICKINESS, INFLATION AND PROFITS *
Author(s) -
GWIN CARL,
VanHOOSE DAVID D.
Publication year - 2012
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/j.1467-9957.2011.02241.x
Subject(s) - economics , inflation (cosmology) , wage , monetary economics , price setting , price level , labour economics , macroeconomics , microeconomics , physics , theoretical physics
This paper investigates the relationship between firm mark‐ups and inflation. In sectors of the economy with industries characterized by flexible prices and sticky wages, mark‐ups should respond positively to inflation. Industry mark‐ups in sectors with both flexible prices and flexible wages theoretically may rise or fall in response to an increase in the price level. Mark‐ups of industries in sectors of the economy in which prices are sticky should respond negatively to inflation, with an absolutely larger negative response occurring in sticky‐price industries with flexible wages. Empirical analysis of US industries provides support for nearly all of these theoretical predictions.