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The cyclicality of mark-ups and profit margins for the United Kingdom: some new evidence

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  • Macallan, Clare

    ()
    (Bank of England)

  • Millard, Stephen

    ()
    (Bank of England)

  • Parker, Miles

    ()
    (Bank of England)

Abstract

In this paper, we assess the cyclicality of mark-ups and profit margins within the United Kingdom, at both the aggregate and industry level. We find that the private sector labour share moves countercyclically, suggesting that the aggregate mark-up moves procyclically. This result survives when we consider more sophisticated measures of the mark-up. And this result is also supported by industry-level data. We find that the aggregate market sector profit share moves procyclically and that the cyclical behaviour of profit margins is largely homogenous across industries. Nevertheless, there is some evidence that margins moved against the cycle in the late 1990s, starting to fall in 1997, whereas GDP growth did not peak until 2000. In tandem with these cyclical movements, we also find that the market sector profit share has trended upwards since 1970, in contrast to the aggregate mark-up, which fell over the same period.

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Bibliographic Info

Paper provided by Bank of England in its series Bank of England working papers with number 351.

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Length: 44 pages
Date of creation: Aug 2008
Date of revision:
Handle: RePEc:boe:boeewp:0351

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Keywords: Mark-ups; profit margins.;

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References

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  1. Rotemberg, Julio J, 1982. "Monopolistic Price Adjustment and Aggregate Output," Review of Economic Studies, Wiley Blackwell, vol. 49(4), pages 517-31, October.
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  9. Erik Britton & Jens D J Larsen & Ian Small, 2000. "Imperfect competition and the dynamics of mark-ups," Bank of England working papers 110, Bank of England.
  10. Nicoletta Batini & Stephen P. Millard & Richard Harrison, 2000. "Monetary Policy Rules For An Open Economy," Computing in Economics and Finance 2000 361, Society for Computational Economics.
  11. Natalie Chen & Jean Imbs & Andrew Scott, 2006. "The dynamics of trade and competition," Working Paper Research 91, National Bank of Belgium.
  12. Michele Boldrin & Michael Horvath, 1994. "Labor Contracts and Business Cycles," Discussion Papers 1068, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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Cited by:
  1. Jennifer V. Greenslade & Miles Parker, 2012. "New Insights into Price‐Setting Behaviour in the UK: Introduction and Survey Results," Economic Journal, Royal Economic Society, vol. 122(558), pages F1-F15, 02.
  2. Laurent Maurin & Moreno Roma & Igor Vetlov, 2011. "Profit Dynamics across the Largest Euro Area countries and Sectors," Bank of Lithuania Working Paper Series 12, Bank of Lithuania.
  3. Güneş Kamber & Stephen Millard, 2010. "Using estimated models to assess nominal and real rigidities in the United Kingdom," Reserve Bank of New Zealand Discussion Paper Series DP2010/05, Reserve Bank of New Zealand.
  4. Nir Klein, 2011. "South Africa: The Cyclical Behavior of the Markups and its Implications for Monetary Policy," IMF Working Papers 11/204, International Monetary Fund.
  5. Crafts, Nicholas, 2011. "British Relative Economic Decline Revisited," CAGE Online Working Paper Series 42, Competitive Advantage in the Global Economy (CAGE).
  6. Greenslade, Jennifer & Parker, Miles, 2010. "New insights into price-setting behaviour in the United Kingdom," Bank of England working papers 395, Bank of England.
  7. Stirati, Antonella, 2014. "Real wages in the business cycle: an unresolved conflict between theory and facts in mainstream macroeconomics," MPRA Paper 53743, University Library of Munich, Germany.
  8. David Norman & Anthony Richards, 2010. "Modelling Inflation in Australia," RBA Research Discussion Papers rdp2010-03, Reserve Bank of Australia.
  9. repec:cge:warwcg:42 is not listed on IDEAS
  10. David Blanchflower, 2009. "Where Next For The Uk Economy?," Scottish Journal of Political Economy, Scottish Economic Society, vol. 56(1), pages 1-23, 02.
  11. Koski, Heli & Pajarinen, Mika, 2013. "Empirical Evaluation of the Effectiveness of Competition Policy," ETLA Working Papers 15, The Research Institute of the Finnish Economy.
  12. David Norman & Anthony Richards, 2012. "The Forecasting Performance of Single Equation Models of Inflation," The Economic Record, The Economic Society of Australia, vol. 88(280), pages 64-78, 03.

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