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A note on labor share, price markup and monetary policy

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  • Chu, Shiou-Yen

Abstract

This paper extends Kaplan and Zoch’s (2020) insight that the total labor share is neither solely nor inversely determined by the price markup in a medium scale dynamic stochastic general equilibrium (DSGE) model with nondurables and durables. Our calibration results show that when monetary policy shocks and markup shocks are set to be positively (negatively) correlated, monetary contraction increases (decreases) total labor share and price markup. The total labor share is countercyclical (procyclical) conditional on a monetary policy shock.

Suggested Citation

  • Chu, Shiou-Yen, 2020. "A note on labor share, price markup and monetary policy," Economics Letters, Elsevier, vol. 192(C).
    • Handle: RePEc:eee:ecolet:v:192:y:2020:i:c:s0165176520301300
    DOI: 10.1016/j.econlet.2020.109169
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    References listed on IDEAS

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    1. David Autor & David Dorn & Lawrence F. Katz & Christina Patterson & John Van Reenen, 2017. "Concentrating on the Fall of the Labor Share," American Economic Review, American Economic Association, vol. 107(5), pages 180-185, May.
    2. Ireland, Peter N., 2014. "The Macroeconomic Effects Of Interest On Reserves," Macroeconomic Dynamics, Cambridge University Press, vol. 18(6), pages 1271-1312, September.
    3. Frank Smets & Rafael Wouters, 2007. "Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach," American Economic Review, American Economic Association, vol. 97(3), pages 586-606, June.
    4. Thomas Piketty & Emmanuel Saez & Gabriel Zucman, 2018. "Distributional National Accounts: Methods and Estimates for the United States," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 133(2), pages 553-609.
    5. Facundo Alvaredo & Lucas Chancel & Thomas Piketty & Gabriel Zucman, 2018. "Distributional National Accounts," Post-Print halshs-03342488, HAL.
    6. Cristiano Cantore & Filippo Ferroni & Miguel León-Ledesma, 2021. "The Missing Link: Monetary Policy and The Labor Share," Journal of the European Economic Association, European Economic Association, vol. 19(3), pages 1592-1620.
    7. Brent Neiman, 2014. "The Global Decline of the Labor Share," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(1), pages 61-103.
    8. Monacelli, Tommaso, 2009. "New Keynesian models, durable goods, and collateral constraints," Journal of Monetary Economics, Elsevier, vol. 56(2), pages 242-254, March.
    9. Greg Kaplan & Piotr Zoch, 2020. "Markups, Labor Market Inequality and the Nature of Work," Working Papers 2020-09, Becker Friedman Institute for Research In Economics.
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    Cited by:

    1. Shiou‐Yen Chu, 2022. "Markups, inequality and monetary‐fiscal policies," Scottish Journal of Political Economy, Scottish Economic Society, vol. 69(4), pages 367-395, September.
    2. Lenney, Jamie, 2022. "Monetary policy transmission, the labour share and HANK models," Bank of England working papers 960, Bank of England.

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    More about this item

    Keywords

    Labor share; Monetary policy; DSGE models;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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