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Bottom-up Markup Fluctuations
We study markup cyclicality in a macroeconomic model with oligopolistic competition and granular shocks. Given changes in demand or productivity of individual firms, we characterize the co-movement of firm, sectoral, and economy-wide markups with sectoral and aggregate output. We then quantify the model's ability to reproduce salient features of the cyclical properties of markups in French firm level data, from the bottom (firm) level to the aggregate level. Our model with granular firm-level shocks only goes a long way in rationalizing various measures of markup cyclicality in the French data.
