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An I(2) Analysis of Inflation and the Markup

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  • Anindya Banerjee
  • Lynne Cockerell
  • Bill Russell

Abstract

An I(2) analysis of Australian inflation and the markup is undertaken within an imperfect competition model. It is found that the levels of prices and costs are best characterised as integrated of order 2 and that the levels cointegrate to the markup which is integrated of order 1. A further cointegrating relationship is found to exist where higher price inflation results in a lower markup in the steady state. The negative correlation between inflation and the markup is interpreted as the cost to firms of overcoming missing information when adjusting prices in an inflationary environment.
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Suggested Citation

  • Anindya Banerjee & Lynne Cockerell & Bill Russell, 2000. "An I(2) Analysis of Inflation and the Markup," Dundee Discussion Papers in Economics 120, Economic Studies, University of Dundee.
    • Handle: RePEc:dun:dpaper:120
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    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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