Price Information in an Open Economy: Theory and Evidence for the United Kingdom, 1951-1991

Christopher Martin

Economic Journal, 1997, vol. 107, issue 444, 1391-1404

Abstract: Price formation is an increasingly important part of modern macroeconomics. However, the empirical literature on price-setting is diverse and confused. This paper uses cointegration techniques to test theories of price-setting on U.K. aggregate data for 1951-91. The author finds: (1) domestic prices are determined by both domestic costs and world prices and (2) at the macroeconomic level, prices are related to marginal cost rather than average or normal cost. Copyright 1997 by Royal Economic Society.

Date: 1997
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