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

  • Banerjee, A.
  • Russell, B.

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.

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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 99205.

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Length: 59 pages
Date of creation: 1999
Date of revision:
Handle: RePEc:oxf:wpaper:99205
Contact details of provider: Postal: Manor Rd. Building, Oxford, OX1 3UQ
Web page: http://www.economics.ox.ac.uk/
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  1. Gregoir, Stephane & Laroque, Guy, 1994. "Polynomial cointegration estimation and test," Journal of Econometrics, Elsevier, vol. 63(1), pages 183-214, July.
  2. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, March.
  3. Gregoir, Stéphane & Laroque, Guy, 1993. "Multivariate Time Series: A Polynomial Error Correction Representation Theorem," Econometric Theory, Cambridge University Press, vol. 9(03), pages 329-342, June.
  4. Niels Haldrup, 1998. "An Econometric Analysis of I(2) Variables," Journal of Economic Surveys, Wiley Blackwell, vol. 12(5), pages 595-650, December.
  5. repec:cup:etheor:v:8:y:1992:i:2:p:188-202 is not listed on IDEAS
  6. Johansen, Søren, 1992. "A Representation of Vector Autoregressive Processes Integrated of Order 2," Econometric Theory, Cambridge University Press, vol. 8(02), pages 188-202, June.
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