The Relationship Between the Markup and Inflation in the G7 Plus One Economies

A. Banerjee and B. Russell

Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: An I(2) analysis of inflation and the markup in 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 of process and costs cointegrate to the markup that is integrated of order 1. It is shown that the markup in each case cointegrates with inflation and that higher inflation leads to a lower markup on the steady state. The lower markup is interpreted as the higher cost to firms of overcoming missing information.

Keywords: INFLATION; PRICES; COSTS (search for similar items in EconPapers)
JEL-codes: E31 (search for similar items in EconPapers)
Date: 1999

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Persistent link: http://EconPapers.repec.org/RePEc:oxf:wpaper:99205

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