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Macroeconomic Changes with Declining Trend Inflation: Complementarity with the Superstar Firm Hypothesis

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  • Takushi Kurozumi

    (Bank of Japan)

  • Willem Van Zandweghe

    (Federal Reserve Bank of Cleveland)

Abstract

Recent studies indicate that, since 1980, the US economy has undergone increases in the average markup and the profit share of income and decreases in the labor share and the investment share of spending. We examine the role of monetary policy in these changes as inflation has concurrently trended down. In a simple staggered price model with a non-CES aggregator of individual differentiated goods, a decline of trend inflation as measured since 1980 can account for a substantial portion of the changes. Moreover, adding a rise of highly productive "superstar firms" to the model can better explain not only the macroeconomic changes but also the micro evidence on the distribution of firms' markups, including the flat median markup.

Suggested Citation

  • Takushi Kurozumi & Willem Van Zandweghe, 2021. "Macroeconomic Changes with Declining Trend Inflation: Complementarity with the Superstar Firm Hypothesis," Bank of Japan Working Paper Series 21-E-13, Bank of Japan.
    • Handle: RePEc:boj:bojwps:wp21e13
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    More about this item

    Keywords

    Average markup; Profit share; Labor share; Trend inflation; Non-CES aggregator; Superstar firm hypothesis;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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