Macroeconomic Changes with Declining Trend Inflation: Complementarity with the Superstar Firm Hypothesis

Takushi Kurozumi and Willem Van Zandweghe

No 21-E-13, Bank of Japan Working Paper Series from Bank of Japan

Abstract: Recent studies indicate that, since 1980, the US economy has undergone increases in the average markup and the profit share of income and decreases in the labor share and the investment share of spending. We examine the role of monetary policy in these changes as inflation has concurrently trended down. In a simple staggered price model with a non-CES aggregator of individual differentiated goods, a decline of trend inflation as measured since 1980 can account for a substantial portion of the changes. Moreover, adding a rise of highly productive "superstar firms" to the model can better explain not only the macroeconomic changes but also the micro evidence on the distribution of firms' markups, including the flat median markup.

Keywords: Average markup; Profit share; Labor share; Trend inflation; Non-CES aggregator; Superstar firm hypothesis (search for similar items in EconPapers)
JEL-codes: E52 L16 (search for similar items in EconPapers)
Date: 2021-11-22
New Economics Papers: this item is included in nep-cwa, nep-mac and nep-mon
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Related works:
Journal Article: Macroeconomic changes with declining trend inflation: Complementarity with the superstar firm hypothesis (2022)
Working Paper: Macroeconomic Changes with Declining Trend Inflation: Complementarity with the Superstar Firm Hypothesis (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:boj:bojwps:wp21e13

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