Asymmetric markup responses to monetary shocksover the business cycle
| Authors | |
|---|---|
| Year of publication | 2025 |
| Type | Article in Periodical |
| Magazine / Source | ECONOMICA |
| MU Faculty or unit | |
| Citation | |
| web | https://onlinelibrary.wiley.com/doi/epdf/10.1111/ecca.12581 |
| Doi | http://dx.doi.org/10.1111/ecca.12581 |
| Keywords | asymmetric responses - business cycle - local projections - markup,monetary shocks |
| Attached files | |
| Description | A rich literature has long studied the asymmetric effects ofmonetary policy over the business cycle, generally present-ing mixed results. Most of the empirical work, however,focuses on the responses of output and prices. Our analy-sis centres on the dynamics of the markup, given the keyrole that it plays in the transmission of monetary pol-icy, the fact that it constitutes a key leading indicator forpredicting economic and financial crises, its direct rela-tionship with income distribution, and the scarce studieson the subject. Recent empirical findings suggest that themarkup decreases (increases) in response to a monetarypolicy tightening (easing) shock, a counterintuitive resultif we consider the basic New Keynesian model, whichdelivers a countercyclical response of the markup condi-tional on a monetary shock. We show that the dynamics ofthe markup depend on whether the monetary policy shocktakes place during a period of expansion or recession, withthe markup responding as expected in the New Keynesianmodel in recessions, but failing to do so in expansions.Our results have important policy implications, providingevidence that the transmission mechanism of monetarypolicy through the markup would not be operative duringbooms. |
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