A1697
Title: Firm-level markups and monetary policy transmission: A panel time-series based analysis
Authors: Utsav Bahl - Williams College (Switzerland) [presenting]
Abstract: Theoretical and empirical economics suggest that market power affects macroeconomic dynamics; firms with substantial market power (reflected in their markups) exhibit less sensitivity to downturns and policy shifts. This should, in theory, give them greater pricing power and allow them to adjust more easily to macroeconomic fluctuations, including monetary policy shocks. At the same time, high markup firms in concentrated environments and facing high menu costs may be less responsive to monetary policy shocks. The dynamic relationship between firms with high markup abilities and their response to monetary policy shocks is analysed. Using Compustat data from over 1500 firms across the US, a heterogeneous Panel Structural Vector Autoregression approach is used to allow for a granular examination of how firms with varying levels of market power respond to monetary shocks and an economic model is considered in order to explain the micro-foundations of this heterogeneity.
