INDUSTRIAL PRICE BEHAVIOR IN INDIA - AN ERROR-CORRECTION MODEL

This paper investigates industrial pricing rules in the Indian economy focusing on the behaviour of the price-cost relation over the cycle. A price equation for aggregate industry is specified with regard to the possible existence of error-correcting mechanisms in the data-generating process, and a crucial result from the theory of co-integrated variables is exploited in the evaluation of the estimates. This constitutes a fresh approach to the modelling of price behaviour in the Indian economy. The results warrant the conclusion that the mark-up is a counter-cyclical variable. © 1991.