Estimation of the Cyclical Behaviour of Mark-Ups: A Technical Note
OECD, Directorate for Employment, Labour and Social Affairs; World Bank - Social Protection Unit (HDNSP); Institute for the Study of Labor (IZA)
Joaquim Oliveira Martins
Organization for Economic Co-Operation and Development (OECD) - Statistics Directorate (STD)
This paper presents estimates of the cyclical fluctuations of price-cost margins, following an extended version of the Rotemberg and Woodford (1991) approach. The results support the hypothesis of counter-cyclical price margins in most manufacturing industries, especially in the presence of downward rigidities of labour inputs. This is consistent with a growing body of empirical literature showing that economic booms tend to increase competition or decrease the incentives for collusion, thereby creating downward pressures on price margins. It also offers an appealing interpretation to the otherwise puzzling pro-cyclicality of real wages.
Number of Pages in PDF File: 16
Keywords: imperfect competition, mark-up, Solow residual, business cycle
JEL Classification: D24, D40, L60working papers series
Date posted: January 6, 2003
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