The markup and aggregate fluctuations in Venezuela. Testing distributional shocks

Fernandez, Leon and Pagliacci, Carolina (2016): The markup and aggregate fluctuations in Venezuela. Testing distributional shocks.

Abstract

In Venezuela, exchange controls affect firm competitiveness, market structures and, potentially, markups’ size. Also, legal rigidities in the labor market and an active setting of minimum wages by the government could produce other markup innovations. These exogenous variations in markups could be the expression of distributional processes between firms, consumers and workers, and ultimately affect the business cycle. Based on different markup measures, we empirically identify how much of the markup variability in Venezuela is due to aggregate fluctuations (supply and demand shocks) and how much can be attributed to distributional processes (exogenous markup shocks). We find that while aggregate fluctuations tend to be more important, exogenous shocks explain a substantial part -about 40%- of the markup. These exogenous shocks mostly affect inflation and nominal wages, but not real activity. When aggregate fluctuations take place, the markup is mainly procyclical.

• Item Type: MPRA Paper
• Language: English
• Keywords: markup, distributional conflict, labor productivity, cyclical fluctuation, sign restriction identification
• Subjects: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; F - International Economics > F3 - International Finance > F30 - General; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J30 - General

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