https://macropaperwarehouse.com/authors/ariel-t-burstein/Ariel T BursteinHugo -- gohugo.ioen-ushttps://macropaperwarehouse.com/papers/bottom-up-markup-fluctuations/https://macropaperwarehouse.com/papers/bottom-up-markup-fluctuations/<p><strong>Research Question</strong></p> <p>The paper asks how firm-level, sector-level, and aggregate markups comove with output at different levels of aggregation, and whether a single structural model can reconcile seemingly contradictory empirical findings about markup cyclicality that arise when researchers use different aggregation schemes.</p> <p><strong>Model</strong></p> <p>The authors build a granular macroeconomic model featuring oligopolistic competition with a nested constant-elasticity-of-substitution (CES) demand structure following Atkeson and Burstein (2008). The economy contains N sectors, each with a discrete number of firms competing under Cournot oligopoly with flexible prices. Firm-level markups are endogenously increasing in within-sector market shares: under Cournot, the sectoral markup is a simple function of the sector&rsquo;s Herfindahl-Hirschman index (HHI), and the aggregate markup is a function of the expenditure-share-weighted average of sectoral HHIs. Firm-level productivity follows a discretized random growth (Gibrat&rsquo;s law) process as in Carvalho and Grassi (2019), generating fat-tailed firm-size distributions and granular aggregate fluctuations. The baseline calibration features only idiosyncratic firm-level productivity shocks and abstracts from aggregate shocks, because—in the model—aggregate shocks that move all firms proportionately do not affect relative market shares and hence do not affect markups.</p>