Uncertainty-driven business cycles: Assessing the markup channel

Artikel

Precautionary pricing and increasing markups in representative-agent DSGE models with nominal rigidities are commonly used to generate negative output effects of uncertainty shocks. We assess whether this theoretical model channel is consistent with the data. Three things stand out. First, consistent with precautionary wage setting, we find that wage markups increase after uncertainty shocks. Second, the impulse responses of price markups are largely inconsistent with the standard model, both at the aggregate as well as the industry level. Finally, and in contrast to times-series evidence, our theoretical model robustly predicts that uncertainty shocks have a quantitatively small impact on the economy.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Journal: Quantitative Economics ; ISSN: 1759-7331 ; Volume: 12 ; Year: 2021 ; Issue: 2 ; Pages: 587-623 ; New Haven, CT: The Econometric Society

Classification and Topics

• Classification: Wirtschaft ; Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts ; Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity ; Business Fluctuations; Cycles
• Subject: markup channel ; precautionary pricing ; price markup ; Uncertainty shocks ; wage markup

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Born, Benjamin ; Pfeifer, Johannes
• Event: Veröffentlichung
• (who): The Econometric Society
• (where): New Haven, CT
• (when): 2021

Further information

• DOI: doi:10.3982/QE1297
• Handle: http://hdl.handle.net/10419/253583
• Last update: 10.03.2025, 11:42 AM CET