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The Cyclicality of Markups in a Model with Adjustment Costs: Econometric Evidence for US Industry


  • Galeotti, Marzio
  • Schiantarelli, Fabio


In this paper, the authors investigate the impact of demand fluctuations on market power in U.S. manufacturing industries. They impose on a model with adjustment costs the minimum structure necessary to recover a measure of markups. Markups are allowed to vary with both the state and future evolution of demand and estimates of price-cost margins are obtained from the Euler equation for capital. The authors conduct the empirical investigation for U.S. two-digit manufacturing industries using annual data covering the 1952-85 period. They find that markups are inversely related to current demand. However, given the state of demand, they vary directly with expectations of future demand changes. Copyright 1998 by Blackwell Publishing Ltd

Suggested Citation

  • Galeotti, Marzio & Schiantarelli, Fabio, 1998. "The Cyclicality of Markups in a Model with Adjustment Costs: Econometric Evidence for US Industry," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 60(2), pages 121-142, May.
  • Handle: RePEc:bla:obuest:v:60:y:1998:i:2:p:121-42

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    References listed on IDEAS

    1. Gottschalk, Peter, 1996. "Is the correlation in welfare participation across generations spurious?," Journal of Public Economics, Elsevier, vol. 63(1), pages 1-25, December.
    2. Arulampalam, Wiji & Booth, Alison L & Elias, Peter, 1996. "Modeling Work-related Training and Training Effects Using Count Data Techniques," The Warwick Economics Research Paper Series (TWERPS) 448, University of Warwick, Department of Economics.
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    Cited by:

    1. Salman Ahmad & Attiya Yasmin Javid, 2015. "Analysing the Price Cost Markup and Its Behaviour over the Business Cycles in Case of Manufacturing Industries of Pakistan," PIDE-Working Papers 2015:117, Pakistan Institute of Development Economics.
    2. Warren, Paul, 2005. "Rentabilite des entreprises sous controle canadien par rapport aux entreprises sous controle americain," Serie de documents de recherche sur l'analyse economique (AE) 2005030f, Statistics Canada, Direction des etudes analytiques.
    3. Alain Gabler, 2007. "Sector-specific Markup Fluctuations and the Business Cycle," Economics Working Papers ECO2007/25, European University Institute.
    4. Johann Burgstaller, 2006. "The cyclicality of interest rate spreads in Austria: Evidence for a financial decelerator?," Economics working papers 2006-02, Department of Economics, Johannes Kepler University Linz, Austria.
    5. Johannes Stroebel & Joseph Vavra, 2014. "House Prices, Local Demand, and Retail Prices," NBER Working Papers 20710, National Bureau of Economic Research, Inc.
    6. Ángel Estrada & David López-Salido, 2005. "Sectoral mark-up dynamics in Spain," Working Papers 0503, Banco de España;Working Papers Homepage.
    7. Andrea Vaona, 2016. "A nonparametric panel data approach to the cyclical dynamics of price-cost margins in the fourth Kondratieff wave," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 6(2), pages 155-170, August.
    8. repec:eee:ecmode:v:68:y:2018:i:c:p:329-339 is not listed on IDEAS
    9. Mandelman, Federico S., 2010. "Business cycles and monetary regimes in emerging economies: A role for a monopolistic banking sector," Journal of International Economics, Elsevier, vol. 81(1), pages 122-138, May.
    10. Mark Bils & Peter J. Klenow & Benjamin A. Malin, 2014. "Resurrecting the Role of the Product Market Wedge in Recessions," NBER Working Papers 20555, National Bureau of Economic Research, Inc.
    11. Gilbert Cette & Rémy Lecat & Ahmed Ould Ahmed Jiddou, 2016. "Margin rate and the cycle: the role of trade openness," Applied Economics, Taylor & Francis Journals, vol. 48(37), pages 3569-3575, August.
    12. Christopher J. Nekarda & Valerie A. Ramey, 2013. "The Cyclical Behavior of the Price-Cost Markup," NBER Working Papers 19099, National Bureau of Economic Research, Inc.
    13. Yossi Spiegel & Konrad O. Stahl, 2014. "Industry Structure and Pricing over the Business Cycle," CESifo Working Paper Series 4848, CESifo Group Munich.
    14. Statistics Canada, 2005. "Profitability of Canadian- Versus U.S.-controlled Enterprises," Economic Analysis (EA) Research Paper Series 2005030e, Statistics Canada, Analytical Studies Branch.
    15. Domenico Marchetti, 2002. "Markups and the Business Cycle: Evidence from Italian Manufacturing Branches," Open Economies Review, Springer, vol. 13(1), pages 87-103, January.
    16. Federico S. Mandelman, 2006. "Business cycles: a role for imperfect competition in the banking system," FRB Atlanta Working Paper 2006-21, Federal Reserve Bank of Atlanta.
    17. Gabler Alain, 2011. "Sector-Specific Markup Fluctuations and the Business Cycle: A Cross-Country Analysis," The B.E. Journal of Macroeconomics, De Gruyter, vol. 11(1), pages 1-32, December.
    18. Ines Perez-Soba Aguilar & Elena Marquez de la Cruz & Ana Rosa Martinez-Canete & Alfonso Palacio-Vera, 2006. "Capital Stock and Unemployment: Searching for the Missing Link," Economics Working Paper Archive wp_475, Levy Economics Institute.
    19. Spiegel, Yossi & Stahl, Konrad, 2014. "Industry structure and pricing over the business cycle," CEPR Discussion Papers 10009, C.E.P.R. Discussion Papers.
    20. Vaona, Andrea, 2010. "A nonparametric panel data approach to the cyclical dynamics of price-cost margins," Kiel Working Papers 1580, Kiel Institute for the World Economy (IfW).
    21. repec:cuf:journl:y:2017:v:18:i:1:jensen is not listed on IDEAS

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