The Markup Elasticity of Monetary Non-Neutrality

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See all articles by Christian Höynck

Christian Höynck

affiliation not provided to SSRN

Minghao Li

affiliation not provided to SSRN

Donghai Zhang

Institute for Macroeconomics and Econometrics - University of Bonn

Date Written: November 21, 2022

Abstract

Firms’ market power, measured by markups, has risen substantially and unequally across sectors. To evaluate the implications of these trends for monetary non-neutrality, we develop a quantitative menu cost model that covers multiple sectors with heterogeneous degrees of market competition. Two quantitative results stand out from the analysis. First, the average markup elasticity of monetary non-neutrality in the United States equals 1. Second, the markup elasticity of monetary non-neutrality would be equal to 1.4 had the markup increased equally across sectors. We provide evidence to support the model mechanisms and predictions, and to differentiate the proposed mechanisms from the existing ones.

Keywords: Rising market power, Monetary non-neutrality, Menu cost model, Heterogeneous market power, Multi-sector model

JEL Classification: E31, E32, E52, E58

Suggested Citation

Höynck, Christian and Li, Minghao and Zhang, Donghai, The Markup Elasticity of Monetary Non-Neutrality (November 21, 2022). Available at SSRN: https://ssrn.com/abstract=

Christian Höynck

affiliation not provided to SSRN

Minghao Li

affiliation not provided to SSRN

Donghai Zhang (Contact Author)

Institute for Macroeconomics and Econometrics - University of Bonn ( email )

Bonn
Germany

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