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Markups and the Asymmetric Pass-Through of Cost Push Shocks

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  • Kharroubi, Enisse
  • Spigt, Renée
  • Igan, Deniz
  • Takahashi, Koji
  • Zakrajsek, Egon

Abstract

This paper studies how prices and markups respond to cost push shocks, taking the example of global oil supply shocks. Using sector-level data for the US, we first document a weaker pass-through of global oil shocks to PPI inflation in sectors where firms charge higher markups. However, high markups mainly reduce the pass-through of dis-inflationary oil shocks, while they barely affect that of inflationary oil shocks. Second, using firm-level data, we show that following a dis-inflationary oil shock, high-markup firms are more likely to raise their markup. In addition, they are also more likely to increase their revenues, and hence their profits. Conversely, we find no difference in the response of high- and low-markup firms to inflationary oil shocks. Taken together, these results suggest that high-markup firms draw significant benefits from dis-inflationary oil shocks, as they are able to raise their markups and expand their revenues. They also suggest that high markups provide little cushion against price pressures stemming from inflationary oil shocks.

Suggested Citation

  • Kharroubi, Enisse & Spigt, Renée & Igan, Deniz & Takahashi, Koji & Zakrajsek, Egon, 2023. "Markups and the Asymmetric Pass-Through of Cost Push Shocks," CEPR Discussion Papers 18723, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:18723
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    More about this item

    Keywords

    Pass-through; Markup; Profits;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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