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Estimation of the Cyclical Behaviour of Mark-ups: A Technical Note

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  • Joaquim Oliveira Martins
  • Stefano Scarpetta

Abstract

This paper presents estimates of the cyclical fluctuations of price-cost margins, following an extended version of the Rotemberg and Woodford (1991) approach. The results support the hypothesis of counter-cyclical price margins in most manufacturing industries, especially in the presence of downward rigidities of labour inputs. This is consistent with a growing body of empirical literature showing that economic booms tend to increase competition or decrease the incentives for collusion, thereby creating downward pressures on price margins. It also offers an appealing interpretation of the otherwise puzzling pro-cyclicality of real wages.

Suggested Citation

  • Joaquim Oliveira Martins & Stefano Scarpetta, 2003. "Estimation of the Cyclical Behaviour of Mark-ups: A Technical Note," OECD Economic Studies, OECD Publishing, vol. 2002(1), pages 173-188.
    • Handle: RePEc:oec:ecokaa:5lmqcr2k2c33
    DOI: 10.1787/eco_studies-v2002-art6-en
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    Cited by:

    1. repec:lic:licosd:13303 is not listed on IDEAS
    2. Hervé Boulhol, 2008. "The Convergence of Price–cost Margins," Open Economies Review, Springer, vol. 19(2), pages 221-240, April.
    3. Brito, Paulo B. & Costa, Luís F. & Dixon, Huw, 2013. "Non-smooth dynamics and multiple equilibria in a Cournot–Ramsey model with endogenous markups," Journal of Economic Dynamics and Control, Elsevier, vol. 37(11), pages 2287-2306.
    4. Luís Costa, 2006. "Entry and fiscal policy effectiveness in a small open economy within a Monetary Union," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 5(1), pages 45-65, May.
    5. Camille Logeay & Silke Tober, 2003. "Time-Varying Nairu and Real Interest Rates in the Euro Area," Economics Working Papers 024, European Network of Economic Policy Research Institutes.
    6. Luis F Costa & Huw D Dixon, "undated". "A Simple Business-Cycle Model with Schumpeterian Features," Discussion Papers 05/30, Department of Economics, University of York.
    7. Hervé Boulhol, 2005. "Pro-competitive policies and the convergence of markups," Post-Print halshs-00193915, HAL.
    8. Declerck, Francis & Viviani, Jean-Laurent, 2012. "Solvency and Performance of French Wineries in Times of Declining Sales: Co-operatives and Corporations," International Journal on Food System Dynamics, International Center for Management, Communication, and Research, vol. 3(2), pages 1-17, December.
    9. Carlos D Santos & Luís F Costa & Paulo B Brito, 2022. "Demand, Supply and Markup Fluctuations," The Economic Journal, Royal Economic Society, vol. 132(644), pages 1620-1645.
    10. Ant Afonso & Lu . Costa, 2013. "Market power and fiscal policy in OECD countries," Applied Economics, Taylor & Francis Journals, vol. 45(32), pages 4545-4555, November.
    11. repec:dau:papers:123456789/6271 is not listed on IDEAS
    12. Roma, Moreno & Vetlov, Igor & Maurin, Laurent, 2011. "Profit dynamics across the largest euro area countries and sectors," Working Paper Series 1410, European Central Bank.
    13. Hervé Boulhol, 2006. "Why Haven't Price-Cost Margins Decreased with Globalization?," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00084267, HAL.
    14. Alain Gabler, 2007. "Sector-specific Markup Fluctuations and the Business Cycle," Economics Working Papers ECO2007/25, European University Institute.
    15. 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.
    16. António Afonso & João Tovar Jalles, 2015. "Fiscal Episodes, Technological Progress and Market Power," Working Papers Department of Economics 2015/09, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    17. Hervé Boulhol, 2005. "The convergence of price-cost margins," Post-Print halshs-00195890, HAL.
    18. Ali Abcha, 2014. "Imperfect competition, government spending and estimated markup," EconomiX Working Papers 2014-11, University of Paris Nanterre, EconomiX.
    19. Fusari, Angelo, 2014. "An Explanation of Economic Change and Development," MPRA Paper 60042, University Library of Munich, Germany, revised 2014.
    20. Fusari, Angelo & Reati, Angelo, 2013. "Endogenizing technical change: Uncertainty, profits, entrepreneurship. A long-term view of sectoral dynamics," Structural Change and Economic Dynamics, Elsevier, vol. 24(C), pages 76-100.
    21. Ant�nio Afonso & Jalles, 2016. "Markups' cyclical behaviour: the role of demand and supply shocks," Applied Economics Letters, Taylor & Francis Journals, vol. 23(1), pages 1-5, January.
    22. Hervé Boulhol, 2005. "Why haven't price-cost margins decreased with globalization?," Cahiers de la Maison des Sciences Economiques bla06007, Université Panthéon-Sorbonne (Paris 1).

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