Browsing by Author "Brito, Paulo"
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- Demand, supply and markup fluctuationsPublication . Santos, Carlos D.; Costa, Luís F.; Brito, PauloMarkup cyclicality has been central for debating policy effectiveness and understanding business cycle fluctuations. However, there are two empirical challenges: separating supply (TFP) from demand shocks, and properly measuring the markups. In this article, we use a panel of Portuguese manufacturing firms for 2004-2014. Since it contains information on product- level prices, we can separate supply from demand shocks. We overcome the markup measurement by using the share of intermediate inputs on revenues, instead of the labor share. Our results suggest that markups are pro-cyclical with TFP shocks, and counter-cyclical with demand shocks. We also show that labor-based markups are pro-cyclical.
- Demand, supply and markup fluctuationsPublication . Santos, Carlos D.; Costa, Luis F.; Brito, PauloThe cyclical behavior of markups is at the center of macroeconomic debate on the origins of business-cycle fluctuations and policy effectiveness. In theory, markups may fluctuate endogenously with the business cycle due to sluggish price adjustment or to deeper motives affecting the price-elasticity of demand faced by individual producers. In this article we make use of a large Örm- and product-level panel of Portuguese manufacturing Örms in the 2004-2010 period. The biggest empirical challenge is to separate supply (TFP) from demand shocks. Our dataset allows to do so, by containing information on product-level prices at a yearly frequency. Furthermore, markups are mismeasured when calculated with the labor share. We use the share of intermediate inputs instead. Our main results suggest that markups are pro-cyclical with TFP shocks and generally counter-cyclical with demand shocks. We also show how markups become procyclical if the markup is obtained using the labour share instead of intermediate inputs. Adjustment costs create a wedge between the labour share and the actual markup which explain the observed correlations.
- Demand, supply and markup fluctuationsPublication . Santos, Carlos D.; Costa, Luis F.; Brito, PauloMarkup cyclicality has been central for debating policy effectiveness and understanding business cycle fluctuations. However, measuring the cyclicality of markups is as important as understanding the microeconomic mechanisms underlying that cyclicality. The latter requires measurement of firm-level markups and separating supply from demand shocks. We construct a novel dataset with detailed (multi-) product-level prices for individual firms. By estimating a structural model of supply and demand, we evaluate how companies adjust prices and marginal costs as a response to shocks. We find that price markups respond positively to supply shocks and negatively to demand shocks. The mechanism explaining the observed markup behaviour is the same for both shocks: incomplete pass-through of changes along the marginal cost curve to price adjustments. These observed price and output responses are consistent with dynamic demand considerations. Finally, we use our estimated shocks to show how aggregate markup fluctuations in the sample period are mostly explained by aggregate demand shocks.
- Economic growth theory, fifty years afterPublication . Brito, PauloFifty year have passed since Solow’s [21] paper on economic growth theory has been published. With a non-specialized reader in mind, we present the main ensuing phases of the theory and the way our own research relates to it. The history of growth theory is conventionally divided into two phases: until early 1970’s, the research is labeled exogenous growth theory, and, starting in late 1980’s until the present, the new growth or endogenous growth theory is being developed. We present the main models of both theories, the stylized facts of growth and a broad view on their compliance of theory with them. At last, we report some avenues that we have been exploring, as well as their motivation and results. This research addresses the topics: existence of multiple BGP’s, indeterminacy, non-monotonous transitions and an exploration on the integration of spatial and growth theories using PDE’s.
- Economic growth, the high-tech sector, and the high skilled : Theory and quantitative implicationsPublication . Gil, Pedro Mazeda; Afonso, Oscar; Brito, PauloEurope’s “2020 Strategy” has the main goal of stimulating economic growth by increasing the weight of the high-tech sector and the share of high-skilled workers. However, cross-country European data suggests the relationship between economic growth and both the technology structure and the skill structure is statistically insignificant. We investigate an analytical mechanism that connects these facts by extending a directed-technical-change growth model and taking it to the data. Under high relative barriers to entry into the high-tech sector and scale effects we replicate the empirical relationships. We derive quantitative policy implications on the effects of a reduction of barriers to entry.
- Economic growth, the high-tech sector, and the high skilled: theory and quantitative implicationsPublication . Gil, Pedro Mazeda; Afonso, Oscar; Brito, PauloEurope's “2020 Strategy” has the main goal of stimulating economic growth by increasing the weight of the high-tech sector and the share of high-skilled workers. However, cross-country European data is at odds with that strategy: the relationship between economic growth and both the technology structure and the skill structure is statistically insignificant, although the last two are positively related. We investigate an analytical mechanism that connects these facts by extending a directed technical change growth model in several directions. We take the model to the data by calibrating it after the estimation of key structural relationships with cross-country data. When we allow for high relative barriers to entry into the high-tech sector and scale effects on growth we are able to replicate the empirical relationships. We derive quantitative policy implications on the effects of education policy on economic growth when leveraged by industrial policy aiming to reduce barriers to entry into the high-tech sector.
- Endividamento externo e crise financeira em ÁfricaPublication . Brito, PauloO tema do endividamento externo e da crise financeira da África é em termos gerais, simultaneamente demasiado complexo e demasiado recente para que possa ser tratado com a profundidade desejável, para mais um trabalho deste tipo. Não obstante, é uma das vertentes mais importantes da situação particularmente difícil que vive a África neste momento podendo mesmo dizer-se que a partir dela se gera um novo tipo de integração global do Continente no Sistema Económico Mundial, não só pelos efeitos recessionistas a que o pagamento do serviço da dívida irá conduzir, mas também pela organização das economias em produtoras de divisas a todo o preço, pela mão do FMI. Isto se se admitir que não haverá uma alteração radical do Sistema Financeiro mundial o que é improvável. Vamos, portanto, analisar quais as características actuais do processo de endividamento dos PVD’s (I parte) e a forma como a África se enquadra neste processo (II parte). Por fim, tenta-se uma tipologia das situações de endividamento em África, para distinguir problemas particulares de endividamento do “problema” geral (III parte).
- Entry and the accumulation of capital : a two state-variable extension to the Ramsey modelPublication . Brito, Paulo; Dixon, HuwIn this paper we consider the entry and exit of firms in a Ramsey model with capital and an endogenous labour supply. At the firm level, there is a fixed cost combined with increasing marginal cost, which gives a standard U-shaped cost curve with optimal firm size. The costs of entry (exit) are quadratic in the flow of new firms. The number of firms becomes a second state variable and the entry dynamics gives rise to a richer set of dynamics than in the standard case: in particular, there is likely to be a hump shaped response of output to a fiscal shock with maximum impact after impact and before steady-state is reached. Output and capital per firm are also likely to be hump shaped
- Entry and the accumulation of capital: A two state variable extension to the Ramsey modelPublication . Brito, Paulo; Dixon, HuwIn this paper we consider the entry and exit of firms in a dynamic general equilibrium model with capital. At the firm level, there is a fixed cost combined with increasing marginal cost, which gives a standard U-shaped cost curve with optimal firm size. Entry is determined by a free entry condition such that the cost of entry is equal to the present value of incumbent firms. The cost of entry (exit) depends on the flow of entry (exit). Equilibrium is saddle-point stable and the stable manifold is two-dimensional. Transitional dynamics can, under certain circumstances, be non-monotonic.
- Equilibrium asset prices and bubbles in a continuous time OLG modelPublication . Brito, PauloIn a Yaari-Blanchard overlapping generations endowment economy, and drawing on the equivalence between Radner (R) and Arrow-Debreu (AD) equilibria, we prove that equilibrium AD prices have an explicit representation as a double integral equation. This allows for an analytic characterization of the relationship between life-cycle and cohort heterogeneity and asset prices. For a simple distribution, we prove that bubbles may exist, and derive conditions for ruling them out.