scholarly journals Demand, Supply, and Markup Fluctuations

2021 ◽  
Author(s):  
Carlos D Santos ◽  
Luís F Costa ◽  
Paulo B Brito
Keyword(s):  
Structural Model ◽  
Supply And Demand ◽  
Aggregate Demand ◽  
Cost Curve ◽  
Firm Level ◽  
Demand Shocks ◽  
Marginal Costs ◽  
Price Adjustments ◽  
Marginal Cost Curve ◽  
Pass Through

Abstract Markup cyclicality has been central for debating policy effectiveness and understanding business-cycle fluctuations. However, measuring the cyclicality of markups is as important as understanding the microeconomic mechanisms underlying that cyclicality. The latter requires measurement of firm-level markups and separating supply from demand shocks. We construct a novel dataset with detailed (multi-)product-level prices for individual firms. By estimating a structural model of supply and demand, we evaluate how companies adjust prices and marginal costs as a response to shocks. We find that price markups respond positively to supply shocks and negatively to demand shocks. The mechanism explaining the observed markup behaviour is the same for both shocks: incomplete pass-through of changes along the marginal-cost curve to price adjustments. These observed price and output responses are consistent with dynamic demand considerations. Finally, we use our estimated shocks to show how aggregate markup fluctuations in the sample period are mostly explained by aggregate demand shocks.

scholarly journals The Response of G7 Real Exchange Rates to Oil Price Shocks

2018 ◽  
Vol 10 (4) ◽  
pp. 191
Author(s):  
Moayad H. Al Rasasi
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Exchange Rates ◽  
Forecast Error ◽  
Supply And Demand ◽  
Real Exchange Rates ◽  
Aggregate Demand ◽  
Demand Shocks ◽  
Oil Supply ◽  
Exchange Rate Shocks

This paper evaluates the response of G7 real exchange rates to oil supply and demand shocks developed by Kilian (2009). We find evidence suggesting that oil shocks are associated with the appreciation (depreciation) of real exchange rates for oil exporting (importing) countries. Further evidence, based on the analysis of forecast error variance decomposition, indicates that oil-specific demand shocks are the main contributor to variation in real exchange rates, whereas oil supply shocks contribute the least. Finally, regarding the role of monetary policy in responding to oil and exchange rate shocks, we find evidence showing monetary policy reacts only to oil-specific demand and aggregate demand shocks in three countries, whereas monetary policy responds to real exchange rate fluctuations in four countries.

scholarly journals State of Shocks Synchronization among Members of the GCC

2017 ◽  
Vol 8 (1) ◽  
pp. 15
Author(s):  
Ashraf Nakibullah
Keyword(s):  
Supply And Demand ◽  
Aggregate Demand ◽  
Oil Price ◽  
Model Specification ◽  
Structural Shocks ◽  
Demand Shocks ◽  
Gcc Countries ◽  
Aggregate Supply ◽  
Supply And Demand Shocks ◽  
Svar Model

This paper examines fluctuations of aggregate supply and demand shocks across the GCC countries. It argues that the world oil price influences aggregate demand and supply of these countries. Thus, in contrast to other studies, a SVAR model is used to identify structural shocks by including the oil price. The aggregate supply and demand shocks are then analyzed. The correlations of supply shocks among the member countries are either negative or low positive. Similarly, the correlations of demand shocks, except few pairs of countries, are also negative and low positive. Thus, shocks are not synchronized. These results are different than the results found in other similar studies probably due to the model specification. The implication of the findings is that the GCC countries would find it difficult to adjust supply and demand shocks if they form their aspired Gulf Monetary Union.

scholarly journals Aggregate Demand, Idle Time, and Unemployment *

2015 ◽  
Vol 130 (2) ◽  
pp. 507-569 ◽  
Author(s):  
Pascal Michaillat ◽  
Emmanuel Saez
Keyword(s):  
Labor Market ◽  
Supply And Demand ◽  
Aggregate Demand ◽  
Labor Demand ◽  
Product Market ◽  
The United States ◽  
Idle Time ◽  
Price Equilibrium ◽  
Empirical Measures ◽  
Demand Shocks

Abstract This article develops a model of unemployment fluctuations. The model keeps the architecture of the general-disequilibrium model of Barro and Grossman (1971) but takes a matching approach to the labor and product markets instead of a disequilibrium approach. On the product and labor markets, both price and tightness adjust to equalize supply and demand. Since there are two equilibrium variables but only one equilibrium condition on each market, a price mechanism is needed to select an equilibrium. We focus on two polar mechanisms: fixed prices and competitive prices. When prices are fixed, aggregate demand affects unemployment as follows. An increase in aggregate demand leads firms to find more customers. This reduces the idle time of their employees and thus increases their labor demand. This in turn reduces unemployment. We combine the predictions of the model and empirical measures of product market tightness, labor market tightness, output, and employment to assess the sources of labor market fluctuations in the United States. First, we find that product market tightness and labor market tightness fluctuate a lot, which implies that the fixed-price equilibrium describes the data better than the competitive-price equilibrium. Next, we find that labor market tightness and employment are positively correlated, which suggests that the labor market fluctuations are mostly due to labor demand shocks and not to labor supply or mismatch shocks. Last, we find that product market tightness and output are positively correlated, which suggests that the labor demand shocks mostly reflect aggregate demand shocks and not technology shocks.

scholarly journals Policy and Business Cycle Shocks: A Structural Factor Model Representation of the US Economy

2021 ◽  
Vol 14 (8) ◽  
pp. 371
Author(s):  
Mario Forni ◽  
Luca Gambetti
Keyword(s):  
Factor Model ◽  
Supply And Demand ◽  
Aggregate Demand ◽  
Dynamic Factor ◽  
Structural Representation ◽  
Demand Shocks ◽  
Us Economy ◽  
Long Run ◽  
The Us ◽  
Policy Shocks

We use a dynamic factor model to provide a semi-structural representation for 101 quarterly US macroeconomic series. We find that (i) the US economy is well described by a number of structural shocks between two and five. Focusing on the four-shock specification, we identify, using sign restrictions, two policy shocks, monetary and fiscal, and two non-policy shocks, demand and supply. We obtain the following results. (ii) Both supply and demand shocks are important sources of fluctuations; supply prevails for GDP, while demand prevails for employment and inflation. (ii) Monetary and fiscal policy shocks have sizable effects on output and prices, with no evidence of crowding-out of private aggregate demand components; both monetary and fiscal authorities implement important systematic countercyclical policies reacting to demand shocks. (iii) Negative demand shocks have a large long-run positive effect on productivity, consistently with the Schumpeterian “cleansing” view of recessions.

Venting Out: Exports during a Domestic Slump

2021 ◽  
Vol 111 (11) ◽  
pp. 3611-3662
Author(s):  
Miguel Almunia ◽  
Pol Antràs ◽  
David Lopez-Rodriguez ◽  
Eduardo Morales
Keyword(s):  
Negative Impact ◽  
Firm Level ◽  
Export Markets ◽  
Demand Shocks ◽  
The Great Recession ◽  
Marginal Costs ◽  
Heterogeneous Firm ◽  
Heterogeneous Firm Model ◽  
Using Data ◽  
Firm Model

We study the relationship between domestic-demand shocks and exports using data for Spanish manufacturing firms in 2002–2013. Exploiting plausibly exogenous geographical variation caused by the Great Recession, we find that firms whose domestic sales declined by more experienced a larger increase in export flows, controlling for firms’ supply determinants. This result illustrates the capacity of export markets to counteract the negative impact of local demand shocks. By structurally estimating a heterogeneous-firm model of exporting with nonconstant marginal costs of production, we conclude that these firm-level responses accounted for half of the spectacular increase in Spanish goods exports over the period 2009–2013. (JEL D22, E32, F14, L60)

scholarly journals Evaluating Microfoundations for Aggregate Price Rigidities: Evidence from Matched Firm-Level Data on Product Prices and Unit Labor Cost

2012 ◽  
Vol 102 (4) ◽  
pp. 1571-1595 ◽  
Author(s):  
Mikael Carlsson ◽  
Oskar Nordström Skans
Keyword(s):  
Marginal Cost ◽  
Labor Cost ◽  
Unit Labor Cost ◽  
Firm Level ◽  
Price Adjustments ◽  
Level Data ◽  
Price Rigidities ◽  
Key Driver ◽  
Pass Through ◽  
Matched Data

Using matched data on product-level prices and the producing firm's unit labor cost, we find a moderate pass-through of current idiosyncratic marginal-cost changes. Also, the response does not vary across firms facing very different idiosyncratic shock variances, but identical aggregate conditions. These results do not fit the predictions of Mackowiak and Wiederholt (2009). Neither do firms react strongly to predictable marginal-cost changes, as expected from Mankiw and Reis (2002). We find that firms consider both current and expected future marginal cost when setting prices. This points toward impediments to continuous price adjustments as a key driver of monetary non-neutrality.

scholarly journals ASYMMETRIES IN RESPONSE TO SHOCKS IN PRICE SETTING: FIRM-LEVEL EVIDENCE FROM SURVEY BASED DATA

2020 ◽  
Vol V (III) ◽  
pp. 45-54
Author(s):  
Nadeem Iqbal ◽  
Amjad Amin ◽  
Danish Wadood Alam
Keyword(s):  
Supply And Demand ◽  
Raw Material ◽  
Price Setting ◽  
Firm Level ◽  
Demand Shocks ◽  
Supply Shocks ◽  
Asymmetric Response ◽  
Supply And Demand Shocks ◽  
Seasonal Factors ◽  
The Cost

The objective of the paper is to estimate the asymmetric response of firms for prices to supply and demand shocks. Firms give an asymmetric response to supply and demand shocks while setting at a price, and the prices are upward flexible and downward rigid to changes in the determinants. Asymmetric response to the cost of raw material is highest. Moreover, the seasonal factors have the lowest degree of asymmetric response. Firms give an asymmetric response to different shocks, with respect to a price increase and decrease, and across variables of demand-side and supply side. The central bank has to focus more on stabilization in response to supply shocks than to demand shocks because supply shocks are found more important than demand shocks to change the prices of firms. Measures should be taken to prevent the possible effects of adverse supply shocks.

Marshallian Cross: An Alternative Justification and Related Issues

2013 ◽  
pp. 108-120 ◽  
Author(s):  
L. Grebnev
Keyword(s):  
Alternative Treatment ◽  
Supply And Demand ◽  
Firm Level ◽  
Economics Courses ◽  
Introductory Economics

The paper provides a justification of the laws of supply and demand using the concept of a marginal firm (technology) for the case of perfect competition.The ideological factor of excessive attention to the analysis of marginal parameters at the firm level in the introductory economics courses is discussed. The author connects these issues to the ideas of J. B. Clark and gives an alternative treatment of exploitation.

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