Template-Type: ReDIF-Paper 1.0
Title: Monetary Policy,Markup Dispersion, and Aggregate TFP
Author-Name: Matthias Meier
Author-Email: m.meier@uni-mannheim.de
Author-Name: Timo Reinelt
Author-Email: timo.reinelt@gess.uni-mannheim.de

Classification-JEL: 
Keywords: Monetary policy, markup dispersion, heterogeneous price rigidity, aggregate TFP

Abstract: We document three new empirical facts: (i) monetary policy shocks increase the markup
dispersion across firms, (ii) monetary policy shocks increase the relative markup of firms that
adjust prices less frequently, and (iii) firms that adjust prices less frequently have higher markups.
This is consistent with a New Keynesian model in which price rigidity is heterogeneous across
firms. In the model, firms with stickier prices optimally set higher markups and their markups
increase by more after monetary policy shocks. The consequent increase in markup dispersion
explains why aggregate TFP declines after monetary policy shocks. In the calibrated model,
monetary policy shocks explain substantial fluctuations in markup dispersion and aggregate
productivity.

Note: 
Length: 53
Creation-Date: 2020-03
Revision-Date: 
File-URL: https://www.crctr224.de/research/discussion-papers/archive/dp161
Handle: RePEc:bon:boncrc:CRCTR224_2020_161