English, Article, Journal or magazine article edition: The euro area inefficiency gap Jordi Galí; Mark Gertler; J. David López-Salido

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Bookmark: http://trove.nla.gov.au/version/158028
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • The euro area inefficiency gap
Author
  • Jordi Galí
  • Mark Gertler
  • J. David López-Salido
Physical Description
  • preprint
Notes
  • We construct a measure of Euro area cyclical efficiency, following the approach developed in Galí, Gertler and López-Salido (2002). Our measure –which we call "the gap"– corresponds to the inverse of price over social marginal cost. Here we present a time series of this gap for the Euro area, as well as its two components, the price and wage markups. As with U.S. data, the ineficiency gap is highly procyclical, and driven largely by countercyclical movements in the wage markup. We are also able to use our gap variable to derive a theory-based measure of the output gap for the Euro area, which we can compare to other measures often used in applications. We also show that the wage markup moves closely with the unemployment rate, as theory would suggest. Finally, we discuss briefly the implications for monetary policy of alternative interpretations of our evidence.
  • Business Cycles, Countercyclical Markups, Monetary Policy
  • RePEc:bde:wpaper:0302
Language
  • English
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