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.
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.
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.
knzn wonders how many people have lost their jobs in 2008?
According to Barack Obama, 600 thousand Americans have lost their jobs since January. Actually, he’s wrong: something like 20 million Americans have lost their jobs since January. It’s just that most of them found new jobs. Probably the new jobs generally weren’t as good as the ones they lost. And almost certainly, more than 600 thousand of them were unable to find new jobs, because many of the new jobs created were filled by new entrants to the labor force or by people who were already unemployed when the year began.
Like almost everyone else I’ve ever heard, Senator Obama is making the mistake of using a net job loss figure with language that, if taken in its plain sense, clearly implies he is talking about gross job loss. And it seems to me that gross job loss is the appropriate concept: losing your job is a pretty serious bummer, even if you are able to find a new one after a few months.
knzn is right to highlight the distinction between gross and net employment outflows. Obama probably was talking about gross job losses. But the reason presidents talk about “the economy” “creating” so many jobs — never mind that an economy can’t create anything — is because that’s the proper way to interpret the statistic.
It is disingenuous to claim that 20 million workers lost jobs in 2008 without also talking about the 19.4 million persons who found new jobs. It would be equally disingenuous for Bush to claim he “created” 19.4 million jobs in 2008. That brings the discussion back to a net flow of 600 thousand.
Composition effects are large and important, as are the welfare losses from unemployment, but it was the 20 million number that struck me — as too small.
I discussed earlier that about 5 percent of the population (10 million persons) moves into and out of employment every month. Assuming outflows account for roughly half of that, we get 5 million persons a month. Over 8 months that comes to 40 million persons, twice knzn’s estimate.
To be fair, knzn’s figure is a rough estimate based on last year’s data and we all know the risk of projecting current trends into the future — just ask LTCM, Bear Stearns, Lehman Brothers, etc. And I suspect that I’m taking knzn’s forecast more seriously than he does but since I’ve already hauled out the sledgehammer, let’s find that fly.
Continue reading ‘Gross flows on the campaign trail’
I created a new page with automated “real-time” graphs of several economic time series. It draws on publicly-available data on interest rates, prices, durable goods and retail sales. The graphs are updated as new data become available.
I have updated significant portions of the web site. I have added my CV and a new research page, complete with links to economic research tools. I’ve also freshened up the style.