Bill Russell

The Relationship between the Markup and Inflation in the G7 Economies and Australia

An I(2) analysis of inflation and the markup is 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 prices and costs cointegrate to the markup that is integrated of order 1. It is also shown that the markup in each case co-integrates with inflation and that higher inflation is associated with a lower markup in the long run.

A reinvestigation of the markup and the business cycle

Abstract 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.

An Empirical Note on the Influence of the US Stock Market on Australian Economic Activity

This paper empirically examines the impact of the US stock market on Australian economic activity as one explanation of the strong correlation in the Australian and US business cycles. It is found that both the US and Australian share markets appear to have a significant impact on Australian activity. Copyright 2000 by Blackwell Publishers Ltd/University of Adelaide and Flinders University of South Australia

ARCH and structural breaks in United States inflation

United States Phillips curves are routinely estimated without accounting for the shifts in mean inflation. As a result, we may expect the standard estimates of Phillips curves to be biased and suffer from auto-regressive conditional heteroscedasticity (ARCH). We demonstrate this is indeed the case. We also demonstrate that once the shifts in mean inflation are accounted for, the ARCH is largely eliminated in the estimated model and the model defining expected rate of inflation in the New Keynesian model plays no significant role in the dynamics of inflation.

The Exports Transmission Mechanism of Foreign Business Cycles to Australia

The present paper examines the impact of foreign business cycles on Australian exports. After accounting for the effect of domestic activity on exports it has been found that foreign activity has at times had a large impact on Australian exports and, therefore, also on Australian GDP. Evidence is also found that the US and Japan have a high output elasticity of demand for Australias exports. Consequently, their business cycles have a larger impact on Australias exports than that suggested by their market shares of Australian exports. Copyright 2002 by The Economic Society of Australia.

The Difference, System and ‘Double-D’ GMM Panel Estimators in the Presence of Structural Breaks

The effects of structural breaks in dynamic panels are more complicated than in time series models as the bias can be either negative or positive. This paper focuses on the effects of mean shifts in otherwise stationary processes within an instrumental variable panel estimation framework. We show the sources of the bias and a Monte Carlo analysis calibrated on United States bank lending data demonstrates the size of the bias for a range of auto-regressive parameters. We also propose additional moment conditions that can be used to reduce the biases caused by shifts in the mean of the data.

‘Modern’ Phillips curves and the implications for the statistical process of inflation

ABSTRACT ‘Modern’ theories of the Phillips curve imply that inflation is an integrated, or near integrated’ process. This article explains this implication and why these ‘modern’ theories are logically inconsistent with what is commonly known about the statistical process of inflation.