The Hitchhiker’s Guide to Markup Estimation

Maarten De Ridder, Basile Grassi and Giovanni Morzenti

No 677, Working Papers from IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University

Abstract: Macroeconomic outcomes depend on the distribution of markups across firms and over time, making firm-level markup estimates key for macroeconomic analysis. Methods to obtain these estimates require data on the prices that firms charge. Firm-level data with wide coverage, however, primarily comes from financial statements, which lack information on prices. We use an analytical framework to show that trends in markups or the dispersion of markups across firms can still be well-measured with such data. Finding the average level of the markup does require pricing data, and we propose a consistent estimator for such settings. We validate the analytical results with simulations of a quantitative macroeconomic model and firm-level administrative production and pricing data. Our analysis supports the use of financial data to measure trends in aggregate markups. Keywords: Macroeconomics, Production Functions, Markups, Competition

Date: 2021
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Working Paper: The Hitchhiker's guide to markup estimation (2022)
Working Paper: The Hitchhiker’s Guide to Markup Estimation (2022)
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