This paper links two existing but separate literatures. Measures of the markup, inflation and relative price variability (RPV) from annual and quarterly US and UK data are used to examine the relationships among the variables. The results show that two long-run relationships can be identified from the data: a negative relationship between inflation and the markup and a positive relationship between inflation and RPV. As RPV does not enter the inflation-markup long-run relationship we argue that explanations of this relationship based on RPV are poor even though they may help explain a short-run relationship between the variables.
|Name||Dundee Discussion Papers in Economics|
|Publisher||University of Dundee|
- Relative price variability