Markups and fiscal transmission in a panel of OECD countries
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Date
2010-06-10T14:42:40Z
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Abstract
This paper studies the role of the markup of price over marginal
cost for the transmission of fiscal policy shocks. We construct time series
of markups allowing for fluctuations in capacity utilization and total factor
productivity and use an aggregate production function that is more general
than Cobb-Douglas. Including the constructed markup series in a panel vector autoregression with annual OECD data, we find that a positive shock
to government spending substantially lowers markups while raising output,
consumption, real interest rates, and government debt. The positive output
response appears to result mainly from the positive reaction of capital utilization rather than from the one of hours worked. JEL classification: E62, E32, C33
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Keywords
Fiscal policy, Government spending, Markup, Panel VAR