This paper incorporates the productivity role of government expenditure into the imperfectly competitive macroeconomic model and re-examines the important findings on the fiscal multiplier proposed by Dixon (1987), Mankiw (1988), and Startz (1989). Generally speaking, we find that the classical...

We document that variations in government purchases generate a rise in consumption, the real and the product wage, and a fall in the markup. This evidence is robust across alternative empirical methodologies used to identify innovations in government spending (structural VAR vs. narrative...

Price inflation in the euro area has been stable and low since the Global Financial Crisis, despite notable changes in output and unemployment. We show that an increasing share of high markup firms is part of the explanation of why inflation remained stubbornly stable and low in the euro area...

This paper extends the mark-up rule relating a firm's profit-maximizing price to its marginal cost and its elasticity of residual demand to the news vendor problem with endogenous pricing. Two adjustments are necessary. First, the relevant elasticity of demand is the elasticity of the average...

In this paper we show that when a monopolist incurs certain costs for servicing or maintaining its customer-base, price markups may decrease with high demand mdash; i.e. markups are countercylical. Indeed, for a given market share when demand booms each customer on average will purchase more...

We derive an estimating equation to estimate markups using the insight of Hall (1986) and the control function approach of Olley and Pakes (1996). We rely on our method to explore the relationship between markups and export behavior using plant-level data. We find significantly higher markups...

In this paper, we study a new channel to explain firms' price setting behavior. We propose that uncertainty about factor prices has a positive effect on markups. We show theoretically that firms with higher shares of inputs with volatile prices set higher markups. We use the Bartik shift-share...

We develop a continuous-time industry equilibrium model of monopolistic competition to understand how product markups are determined in the presence of external financing costs and customer capital. Firms optimally set markups to balance the tradeoff between profiting from their existing...