TY  - JOUR
AU  - Edmond,Chris
AU  - Veldkamp,Laura
TI  - Income Dispersion and Counter-Cyclical Markups
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14452
PY  - 2008
Y2  - October 2008
UR  - http://www.nber.org/papers/w14452
L1  - http://www.nber.org/papers/w14452.pdf
N1  - Author contact info:
Chris Edmond
Department of Economics
University of Melbourne
Parkville VIC 3010
AUSTRALIA
Tel: +61-3-8344-9733
Fax: +61-3-8344-6899
E-Mail: chris.edmond@gmail.com

Laura Veldkamp
Stern School of Business
New York University
44 W Fourth Street,Suite 7-77
New York, NY 10012
Tel: 212/998-0527
Fax: 212/995-4218
E-Mail: lveldkam@stern.nyu.edu
AB  - Recent advances in measuring cyclical changes in the income distribution raise new questions: How might these distributional changes affect the business cycle itself? We show how counter-cyclical income dispersion can generate counter-cyclical markups in the goods market, without any preference shocks or price-setting frictions. In recessions, heterogeneous labor productivity shocks raise income dispersion, lower the price elasticity of demand, and increase imperfectly competitive firms' optimal markups. The calibrated model explains not only many cyclical features of markups, but also cyclical, long-run and cross-state patterns of standard business cycle aggregates.
ER  -