Markups, Fluctuations, and Financial Frictions (MUFFINs) Link
Introduction Link
We study the relationship between monopoly power and aggregate fluctuations by responding three research questions:
- How do markups react to demand and productivity shocks? We explore microeconomic databases where price and quantity information are used to identify both productivity and demand shocks. We also study the mismeasurement problem of using the labour share as a proxy for markups.
- How are firms' pricing and markup decisions influenced by their financial strength? We use the results produced by the response to (1) and the financial information available. We test existing theories for markup fluctuations based upon corporate-finance explanations.
- Can counter-cyclical markups induce singular dynamics at the macroeconomic level? We use recent methods from applied mathematics in a standard dynamic general equilibrium model with an endogenous markup generated by Cournot competition and entry. Finally, our results can be used for policy be it fiscal, monetary or regulatory.
Financial support by FCT - Portuguese National Funding Agency for Science, Research and Technology is gratefully acknowledged. Research grant PTDC/EGE-ECO/28814/2017.