Monetary policy, markup dispersion, and aggregate TFP

Arbeitspapier

We document three new empirical facts: (i) monetary policy shocks increase the markup dispersion across firms, (ii) they increase the relative markup of firms with stickier prices, and (iii) firms with stickier prices have higher markups. This is consis- tent with a New Keynesian model in which price rigidity is heterogeneous across firms. In the model, firms with more rigid prices optimally set higher markups and their markups increase by more after monetary policy shocks. The consequent increase in markup dispersion explains a negative aggregate TFP response. In a calibrated model, monetary policy shocks generate substantial fluctuations in aggregate productivity.

Object Details

• ISBN: 978-92-899-4070-2
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 2427

Classification and Topics

• Classification: Wirtschaft ; Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data) ; Monetary Policy, Central Banking, and the Supply of Money and Credit: General
• Subject: Monetary policy ; markup dispersion ; heterogeneous price rigidity ; aggregate productivity

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Meier, Matthias ; Reinelt, Timo
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2020

Further information

• DOI: doi:10.2866/201533
• Handle: http://hdl.handle.net/10419/229041
• Last update: 10.03.2025, 11:45 AM CET