Estimation of the Cyclical Behaviour of Mark-Ups: A Technical Note

16 Pages Posted: 6 Jan 2003

See all articles by Stefano Scarpetta

Stefano Scarpetta

OECD, Directorate for Employment, Labour and Social Affairs; IZA Institute of Labor Economics

Joaquim Oliveira Martins

OECD; University Paris-Dauphine - PSL

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Abstract

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.

Keywords: imperfect competition, mark-up, Solow residual, business cycle

JEL Classification: D24, D40, L60

Suggested Citation

Scarpetta, Stefano and Oliveira Martins, Joaquim, Estimation of the Cyclical Behaviour of Mark-Ups: A Technical Note. Available at SSRN: https://ssrn.com/abstract=335543 or http://dx.doi.org/10.2139/ssrn.335543

Stefano Scarpetta (Contact Author)

OECD, Directorate for Employment, Labour and Social Affairs ( email )

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Joaquim Oliveira Martins

OECD ( email )

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University Paris-Dauphine - PSL ( email )

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