International Finance Discussion Papers (IFDP)
March 2009
Markup Variation and Endogenous Fluctuations in the Price of Investment Goods
Max Floetotto, Nir Jaimovich, and Seth Pruitt
Abstract:
The two sector model presented in this note suggests a simple structural decomposition of movements in the price of investment goods into exogenous and endogenous sources. The endogenous fluctuations arise in the presence of countercyclical markups which vary differently across the consumption and investment sectors. In turn, the movements in the markups are due to endogenous procyclical net business formation. The model, while being consistent with the countercyclicality of the price of investment goods, suggests that about a quarter of the movement in the price series can be attributed to this endogenous mechanism.
Full paper (screen reader version)Keywords: Price of investment, business cycle, firm dynamics, markup
PDF: Full Paper
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