Demand, supply and markup fluctuations

Santos, Carlos D.; Costa, Luís F.; Brito, Paulo

http://hdl.handle.net/10400.5/16022

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Authors

Santos, Carlos D.

Costa, Luís F.

Brito, Paulo

Abstract(s)

Markup 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.

Keywords

Markups Demand Shocks TFP Shocks

URI

http://hdl.handle.net/10400.5/16022

Citation

Santos, Carlos D., Luís F. Costa and Paulo Brito (2018). "Demand, supply and markup fluctuations". Instituto Superior de Economia e Gestão – REM Working paper nº 041 - 2018