Recent advances in measuring cyclical changes in the income distribution raise new questions: How might these distributional changes affect the business cycle itself? We show how counter-cyclical income dispersion can generate counter-cyclical markups in the goods market, without any preference...

We construct a model of counter-cyclical markups based on cyclical variation inthe dispersion of income across agents. The model is neoclassical in most respects, with monopolistically competitive firms facing a distribution of buyers that changes through time. Income dispersion is high during...

Recent advances in measuring cyclical changes in the income distribution raise new questions: How might these distributional changes affect the business cycle itself? We show how counter-cyclical income dispersion can generate counter-cyclical markups in the goods market, without any preference...

The idea that information frictions amplify business cycles is hard to evaluate because information is not easily measured. We propose a quantifiable information friction that amplifies output fluctuations. In our simple model of decentralized trade, income dispersion measures uncertainty about...

We study the gains from trade in a model with endogenously variable markups. We show that the pro-competitive gains from trade are large if the economy is characterized by (i) extensive misallocation, i.e., large inefficiencies associated with markups, and (ii) a weak pattern of cross-country...