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Does the New Keynesian Phillips curve need countercyclical markups?

Bae-Geun Kim

Economic Modelling, 2017, vol. 63, issue C, 262-282

Abstract: This paper examines the behavior of four types of markup measures and its implications for the new Keynesian Phillips curve (NKPC). The four types of measures are a procyclical measure, a weakly procyclical measure, an acyclical measure and a countercyclical measure. Motivated by the fact that the U.S. markup has shifted up dramatically since the early 2000s, the paper also presents both empirical dynamics and a new Keynesian model featuring nonstationary markups. After inspecting empirical dynamics of key macroeconomic variables and the performance of the model, it points out that weakly procyclical or acyclical markups are more consistent with the purely forward-looking NKPC. Moreover, a major shortcoming of standard new Keynesian models is their inability to trace the actual behavior of the markup in response to a demand shock.

Keywords: Cyclicality of markups; New Keynesian Phillips curve; Permanent markup shock (search for similar items in EconPapers)
JEL-codes: E31 E32 (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:eee:ecmode:v:63:y:2017:i:c:p:262-282