Demand, Supply, and Markup Fluctuations

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.

Spatially explicit analysis identifies significant potential for bioenergy with carbon capture and storage in China

As China ramped-up coal power capacities rapidly while CO2 emissions need to decline, these capacities would turn into stranded assets. To deal with this risk, a promising option is to retrofit these capacities to co-fire with biomass and eventually upgrade to CCS operation (BECCS), but the feasibility is debated with respect to negative impacts on broader sustainability issues. Here we present a data-rich spatially explicit approach to estimate the marginal cost curve for decarbonizing the power sector in China with BECCS. We identify a potential of 222 GW of power capacities in 2836 counties generated by co-firing 0.9 Gt of biomass from the same county, with half being agricultural residues. Our spatially explicit method helps to reduce uncertainty in the economic costs and emissions of BECCS, identify the best opportunities for bioenergy and show the limitations by logistical challenges to achieve carbon neutrality in the power sector with large-scale BECCS in China.

Export-promoting Protection: Endogenous Monopoly and Price Disparity

This note shows that protection induced export promotion can arise even in the absence of economies of scale , which have been long analysed as factors sliding an import substituting industry up the scale of comparative advantage and turning it into an exporter eventually. Even with an upward-sloping marginal-cost curve, a domestic monopolist can be protected and could then charge discriminatory prices in domestic and export markets, thus becoming an exporter whereas; free trade would have destroyed the monopoly and led to imports instead.