The Cyclical Behavior of the Price-Cost Markup

Abstract

Wouters, and participants at numerous seminars for helpful comments. Ben Backes and Myungkyu Shim provided excellent research assistance. Valerie Ramey gratefully acknowledges financial support from National Science Foundation grant SES-0617219 through the National Bureau of Economic Research. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

A Shopkeeper Economy

“…While they study a dynamic setting with fixed prices under uncertainty, the model below is static and prices are always at monopolists' desired levels. A distinguishing feature of the shopkeeper setup is that markups are procyclical, consistent with the evidence in Nekarda and Ramey (2013).…”

Downward Nominal Wage Rigidities Bend the Phillips Curve

“…Galí and Gertler, 1999) . Though, recent empirical estimates by Nekarda and Ramey (2010) suggest that markups might actually be procyclical. 12 The absence of capital goods in the economy means that, in equilibrium, output, , equals the level of consumption of the representative household, .…”

The Equity Premium, Long-Run Risk, & Optimal Monetary Policy

“…Other studies have focused on the inverse of the labor share, as this can be shown to be theoretically proportional to the markup if the production function is Cobb-Douglas. Nekarda and Ramey (2013) show that an upward trend of the markup began in the early 1980s. The rise in the markup coincides with the more aggressive role of monetary policy in stabilizing inflation.…”