343
Views
3
CrossRef citations to date
0
Altmetric
Original Articles

Markups’ cyclical behaviour: the role of demand and supply shocks

&
Pages 1-5 | Published online: 03 Aug 2015
 

abstract

We assess how demand and supply shocks (identified via the Blanchard and Quah (1989) structural vector autoregression approach) in 14 OECD countries affect markups. We find that individual responses of markups to demand shocks push down the markup for most countries (confirmed in the panel analysis). On the other hand, a supply shock has a more mixed effect.

JEL Classification:

Notes

1 Here y and u are assumed to be I(1) and hence the VAR model uses first differences of the respective variables.

2 While the presence of a lagged dependent variable and country-fixed effects may in principle bias the estimation of and in small samples (Nickell Citation1981), the length of the time dimension mitigates this concern. The finite sample bias is in order of 1/T, where T in our sample is 38.

3 These include accounting for potential endogeneity by re-estimating the IRFs using GMM estimators. Moreover, Equation 8 was re-estimated by including time-fixed effects to control for specific time shocks. The results (omitted) for this specification remain statistically significant and broadly unchanged. Furthermore, a possible bias from estimating Equation 8 using country-fixed effects is that the error term of the equation may have a nonzero expected value, due to the interaction of fixed effects and country-specific arrival rates of shocks. This would lead to a bias in the estimates that is a function of k. To address this issue, Equation 8 was re-estimated by excluding country-fixed effects. The results (omitted) suggest that this bias is negligible.

Log in via your institution

Log in to Taylor & Francis Online

PDF download + Online access

  • 48 hours access to article PDF & online version
  • Article PDF can be downloaded
  • Article PDF can be printed
USD 53.00 Add to cart

Issue Purchase

  • 30 days online access to complete issue
  • Article PDFs can be downloaded
  • Article PDFs can be printed
USD 205.00 Add to cart

* Local tax will be added as applicable

Related Research

People also read lists articles that other readers of this article have read.

Recommended articles lists articles that we recommend and is powered by our AI driven recommendation engine.

Cited by lists all citing articles based on Crossref citations.
Articles with the Crossref icon will open in a new tab.