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Working Paper
Customer Capital, Markup Cyclicality, and Amplification
This paper studies the importance of firm-level price markup dynamics for business cycle fluctuations. Using state-of-the-art IO techniques to measure the behavior of markups over the business cycle at the firm level, I find that markups are countercyclical with an average elasticity of -1.1 with respect to real GDP. Importantly, I find substantial heterogeneity in markup cyclicality across firms, with small firms having significantly more counter-cyclical markups than large firms. Then, I develop a general equilibrium model by embedding customer capital (due to deep habits as in Ravn, ...