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Demand, Supply and Markup Fluctuations

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  • Carlos D. Santos
  • Luís F. Costa
  • Paulo Brito

Abstract

Markup cyclicality has been central for debating policy e§ectiveness and understanding business cycle áuctuations. However, there are two empirical challenges: separating supply (TFP) from demand shocks, and properly measuring the markups. In this article, we use a panel of Portuguese manufacturing Örms for 2004-2014. Since it contains information on product-level prices, we can separate supply from demand shocks. We overcome the markup measurement by using the share of intermediate inputs on revenues,instead of the labor share. Our results suggest that markups are pro-cyclical with TFP shocks, and counter-cyclical with demand shocks. We also show that labor-based markups are pro-cyclical.

Suggested Citation

  • Carlos D. Santos & Luís F. Costa & Paulo Brito, 2018. "Demand, Supply and Markup Fluctuations," Working Papers REM 2018/41, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    • Handle: RePEc:ise:remwps:wp0412018
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    More about this item

    Keywords

    Markups; Demand Shocks; TFP shocks;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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