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Markups, inequality and monetary‐fiscal policies

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  • Shiou‐Yen Chu

Abstract

This paper reexamines the cyclical behaviors of price markup, profits, and labor share when responding to monetary and fiscal policy shocks in a two‐agent, two‐branch, and two‐sector model. We show that this framework is able to generate procyclical price markup and profits, and countercyclical labor share conditional on expansionary policy shocks. These results are in line with empirical evidences but at odds with the prediction of canonical New Keynesian models. As the share of nondurables in total production decreases, the results reverse. This finding implies expansionary monetary and fiscal policies widen the income inequality between Ricardian households and collateral‐constrained households.

Suggested Citation

  • Shiou‐Yen Chu, 2022. "Markups, inequality and monetary‐fiscal policies," Scottish Journal of Political Economy, Scottish Economic Society, vol. 69(4), pages 367-395, September.
    • Handle: RePEc:bla:scotjp:v:69:y:2022:i:4:p:367-395
    DOI: 10.1111/sjpe.12312
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