The Markup Elasticity of Monetary Non-Neutrality

52 Pages Posted: 5 Dec 2022

See all articles by Christian Höynck

Christian Höynck

Bank of Italy

Minghao Li

Peking University

Donghai Zhang

National University of Singapore (NUS), Department of Economics

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=4283059 or http://dx.doi.org/10.2139/ssrn.4283059

Christian Höynck

Bank of Italy

Minghao Li

Peking University

Donghai Zhang (Contact Author)

National University of Singapore (NUS), Department of Economics ( email )

Singapore
Singapore

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