Monetary Policy,Markup Dispersion, and Aggregate TFP

Matthias Meier and Timo Reinelt

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: We document three new empirical facts: (i) monetary policy shocks increase the markup dispersion across firms, (ii) monetary policy shocks increase the relative markup of firms that adjust prices less frequently, and (iii) firms that adjust prices less frequently have higher markups. This is consistent with a New Keynesian model in which price rigidity is heterogeneous across firms. In the model, firms with stickier prices optimally set higher markups and their markups increase by more after monetary policy shocks. The consequent increase in markup dispersion explains why aggregate TFP declines after monetary policy shocks. In the calibrated model, monetary policy shocks explain substantial fluctuations in markup dispersion and aggregate productivity.

Keywords: Monetary policy; markup dispersion; heterogeneous price rigidity; aggregate TFP (search for similar items in EconPapers)
Pages: 53
Date: 2020-03
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
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Citations: View citations in EconPapers (13)

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Related works:
Journal Article: Monetary Policy, Markup Dispersion, and Aggregate TFP (2024)
Working Paper: Monetary policy, markup dispersion, and aggregate TFP (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:bon:boncrc:crctr224_2020_161

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