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Sector-Specific Markup Fluctuations and the Business Cycle: A Cross-Country Analysis

Alain Gabler ()

The B.E. Journal of Macroeconomics, 2011, vol. 11, issue 1, 1-32

Abstract: U.S. equipment investment is negatively correlated with its price in consumption units in the short run. I show that this is not the case in many OECD countries, and that cross-country differences in the behavior of the relative price of equipment can be explained by the presence of time-varying markups and the fact that barriers to firm entry differ across countries. A calibrated version of the model can account for about one-fourth of the observed fluctuations in the relative price of equipment investment in the U.S., as well as a sizable part of the qualitative differences in the behavior of this price across countries.

Date: 2011
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DOI: 10.2202/1935-1690.2228

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