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Markups and oil prices in Canada

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  • Khan, Hashmat
  • Kim, Bae-Geun

Abstract

The markup (the ratio of price to marginal cost) in Canada has risen steadily since the early 1990s suggesting a widening gap between the actual and the efficient level of output and a declining share of labor income in GDP. It exhibits non-stationary movements over the sample period 1982Q1 to 2009Q4, allowing us to identify a permanent markup shock. We provide evidence that oil price movements are important for understanding the behavior of the markup, and separately identify both oil price shocks and permanent non-oil markup shocks. Our key findings are: (1) oil price shocks and non-oil markup shocks account for 50 to 80percent of the variation in the markup, with the former dominating at shorter horizons; (2) the role of oil price shocks is prominent in accounting for the upward trend in the markup since the mid-1990s; (3) the direct effects of oil prices on the markup in the mining sector (which includes the oil-producing sector) have contributed the most to the upward trend in the aggregate markup; and (4) other explanations such as market structure shifts, trend inflation movements and the falling relative price of investment do not appear to account for the behavior of the markup.

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  • Khan, Hashmat & Kim, Bae-Geun, 2013. "Markups and oil prices in Canada," Economic Modelling, Elsevier, vol. 30(C), pages 799-813.
    • Handle: RePEc:eee:ecmode:v:30:y:2013:i:c:p:799-813
    DOI: 10.1016/j.econmod.2012.10.017
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    Cited by:

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    2. Ma, Xiaohan, 2023. "Oil uncertainty and the price-cost markup: Evidence from U.S. data," Energy Economics, Elsevier, vol. 124(C).
    3. Ms. Deniz O Igan & Ali Mirzaei & Tomoe Moore, 2018. "How Do Regulations of Entry and Credit Access Relate to Industry Competition? International Evidence," IMF Working Papers 2018/084, International Monetary Fund.
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    6. Bae-Geun Kim, 2016. "Explaining movements of the labor share in the Korean economy: factor substitution, markups and bargaining power," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 14(3), pages 327-352, September.

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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