Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/155545
Authors: 
Born, Benjamin
Pfeifer, Johannes
Year of Publication: 
2017
Series/Report no.: 
CESifo Working Paper 6303
Abstract: 
A growing recent literature relies on a precautionary pricing motive embedded in representative agent DSGE models with sticky prices and wages to generate negative output effects of uncertainty shocks. We assess whether this theoretical model channel is consistent with the data. Building a New Keynesian model, we show that indeed with sufficient nominal rigidities markups increase and output falls after uncertainty shocks. The model is also used as a business cycle accounting device to construct aggregate markups from the data. Time-series techniques are employed to study the conditional comovement between markups and output in the data. Consistent with the model’s precautionary wage setting, we find that wage markups increase after uncertainty shocks. Price markups in contrast fall. This finding - inconsistent with the model - is corroborated by industry-level data. Overall, these results point to a prominent role for sticky wages in the transmission of uncertainty shocks.
Subjects: 
uncertainty shocks
price markup
wage markup
JEL: 
E32
E01
E24
Document Type: 
Working Paper

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