We have updated our paper “The Cyclicality of the Price-Cost Markup”. You can download the revised version directly here or on my research page.
Tag Archive for 'cyclicality'
Valerie Ramey and I have posted a draft of our new working paper, “The Cyclical Behavior of the Price-Cost Markup.” In it we present considerable evidence that markups are significantly procyclical, contrary to the stylized fact that markups are countercyclical.
Here is the abstract:
Countercyclical markups constitute the key transmission mechanism for monetary and other “demand” shocks in New Keynesian models. This paper tests the foundation of those models by studying the cyclical properties of the markup of price over marginal cost. The first part of the paper studies markups in the aggregate economy and the manufacturing sector. We use Bils’ (1987) insights for converting average cost to marginal cost, but do so with richer data. We find that all measures of markups are either procyclical or acyclical. Moreover, we show that monetary shocks lead markups to fall with output. The second part of the paper merges input-output information on shipments to the government with detailed industry data to study the effect of demand changes on industry-level markups. Industry-level markups are found to be decidedly procyclical in response to demand changes.
You can download a copy of the paper from the link above or on my Research page.
My new paper with Shigeru Fujita and Garey Ramey, The Cycality of Worker Flows: New Evidence from the SIPP, has been released. Read more or download a copy on my research page.