Monopolistic Competition in Switzerland and Mark-up Pricing Over the Business Cycle

We investigate how firms' market power affects the price level. In our small macro- model we show, that firms - in addition to hypothesised structural mark-up pricing power - may take advantage of favourable business cycle fluctuations. The paper provides empirical evidence for both these propositions to hold. To show this, we estimate the model in a multivariate time series framework with double integrated variables. We can derive a model based business cycle indicator which compares very well with exogenous survey data information.