Heterogeneous markups cyclicality and monetary policy

Working paper

This paper revisits the question on the conditional cyclicality of the aggregate markup using a micro-to-macro approach, which highlights the role of firm-level heterogeneous cyclicality, the reallocation of economic activity across firms, and aggregation methods. Using US firm-level data from 1990 to 2016, we find that young firms have procyclical markups conditional on monetary shocks, while older firms show countercyclical markups. Moreover, economic activity reallocates from old to young firms after monetary shocks. Aggregating these responses, we find that the aggregate markup is countercyclical to monetary shocks. Over time, firm aging has changed the distribution of firms, altering the aggregate markup cyclicality, which help reconcile part of the conflicting findings in the literature.

Authors: Chiavari, A; Morazzoni, M; Smirnov, D

• Publication status: Published
• Publisher: University of Oxford
• Series: Department of Economics Discussion Paper Series
• Place of publication: Oxford
• Publication date: 2025-12-15
• Paper number: 1098
• Language: English
• Keywords: heterogeneous firms; markups cyclicality; monetary policy shocks