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

Takushi Kurozumi () and Willem Van Zandweghe ()

No 202035, Working Papers from Federal Reserve Bank of Cleveland

Abstract: Recent studies indicate that, since 1980, the average markup and the profit share of income have increased, while the labor share and the investment share of spending have decreased. 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 differentiated goods, a decline in trend inflation as measured since 1980 can account for a substantial portion of the changes. Moreover, introducing a rise in the productivity of “superstar firms” in 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)
Pages: 34
Date: 2020-11-12
New Economics Papers: this item is included in nep-mac and nep-mon
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DOI: 10.26509/frbc-wp-202035

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