A reinvestigation of the markup and the business cycle [An article from: Economic Modelling]

This digital document is a journal article from Economic Modelling, published by Elsevier in 2004. The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.

Description:
A fresh interpretation is provided of the influential finding that the markup of prices over marginal costs is counter-cyclical. Using quarterly US data we argue that the markup is best modelled as a variable that is integrated of order one. A consequence of this finding is that the markup cannot be related in the long run with business cycle variables since these are traditionally thought of as being stationary. A distinction must therefore be made between the long- and the short-run behaviour of the markup. It is shown that the markup is negatively related to inflation in the long-run, while stationary transforms of the markup are counter-cyclical in the short-run.