Markups, Fluctuations, and Financial Frictions (MUFFINs)

Introduction

We study the relationship between monopoly power and aggregate fluctuations by responding three research questions:

1. How do markups react to demand and productivity shocks? We explore microeconomic databases where price and quantity information are used to identify both productivity and demand shocks. We also study the mismeasurement problem of using the labour share as a proxy for markups.
2. How are firms' pricing and markup decisions influenced by their financial strength? We use the results produced by the response to (1) and the financial information available. We test existing theories for markup fluctuations based upon corporate-finance explanations.
3. Can counter-cyclical markups induce singular dynamics at the macroeconomic level? We use recent methods from applied mathematics in a standard dynamic general equilibrium model with an endogenous markup generated by Cournot competition and entry. Finally, our results can be used for policy be it fiscal, monetary or regulatory.

Financial support by FCT - Portuguese National Funding Agency for Science, Research and Technology is gratefully acknowledged. Research grant PTDC/EGE-ECO/28814/2017.

Participating institutions

• REM - Research on Economics and Mathematics; UECE - Research Unit on Complexity and Economics.
• Nova School of Business and Economics.

Researchers

• Paulo Brito (co-PI) - ISEG, ULisboa; REM - Research on Economics and Mathematics; UECE - Research Unit on Complexity and Economics.
• Luís F. Costa (PI) - ISEG, ULisboa; REM - Research on Economics and Mathematics; UECE - Research Unit on Complexity and Economics.
• Cláudia Custódio - Imperial College London.
• Huw Dixon - Cardiff Business School, Cardiff University.
• Carlos Santos - Nova School of Business & Economics.
• João Costa Filho - REM - Research on Economics and Mathematics; UECE - Research Unit on Complexity and Economics; Ibmec SP; FGV.

Papers

• Santos, C., Costa, L., & Brito, P. (2018). Demand, Supply and Markup Fluctuations. REM Working Papers 041.
• Brito, P., Costa, L., Custódio, C. & Santos, C. (2020). How Do Firms React to Demand and Productivity Shocks? The efects of financial strength on price and markup responses. Ready for dissemination soon.
• Brito, P., Costa, L. & Dixon, H. (2020). To Infinity and Beyond: Singular macroeconomic dynamics and temporary (in)determinacy. Ready for dissemination soon.

Graduate supervision

PhD students

• Faustino, R. (2020). Essays in Macroeconomics. PhD in Economics, ISEG - ULisboa. Supervisor: Luís F. Costa. Status: waiting for viva.

MSc students

• Abreu, F. (2018). What Has Been Driving the Fluctuations in the Portuguese Economy? A business-cycle accounting approach. MSc in Economics, ISEG - ULisboa. Supervisors: Luís F. Costa & Pedro Brinca (Nova SBE). Status: degree obtained in December 2018.

Dissemination

Conferences

• 2019-09-13 - 7th UECE Conference on Economic and Financial Adjustments, ISEG - Lisbon School of Economics & Management - Brito, Costa & Dixon.
• 2019-07-19 - 13th Annual Meeting of the Portuguese Economic Journal, University of Évora - Brito, Costa & Dixon.