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The Cyclical Behavior of the Markups in the New Keynesian Models

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  • Nlemfu Mukoko, Jean Blaise

Abstract

Different methods have been used in the literature to mesure and analyze price markup cyclical behavior. We use a medium-scale DSGE Model with positive trend in ation, in which aggregate fluctuations are driven by neutral technology, marginal efficiency of investment (MEI) and monetary policy shocks and, where both price and wage markups vary. We find that when raising trend inflation from 0 to 4 percent, wage markup is more important than price markup in explaining the dynamics effects of shocks. Thus, the interactions between positive trend inflation and MEI shocks have greater cyclical effects on wage markup than on price markup. These results put into question the focus on the price markup cyclicality in the literature which ignore the implications of trend inflation.

Suggested Citation

  • Nlemfu Mukoko, Jean Blaise, 2015. "The Cyclical Behavior of the Markups in the New Keynesian Models," MPRA Paper 72478, University Library of Munich, Germany, revised May 2016.
    • Handle: RePEc:pra:mprapa:72478
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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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