We show that the cyclicality of output growth is a sufficient predictor for the cyclicality of markups in models that micro-found variable markups through dynamic trade-offs. We use data on markups from the U.S. as well as survey data on firms' expectations from New Zealand to test the predictions of these models and find evidence in favor of their mechanisms. Finally, we study the implications of these mechanisms for cyclicality of markups in a calibrated general equilibrium model. In particular, we find that the degree of hump-shaped response in output is crucial for the direction of aggregate markup cyclicality.

This content is only available as a PDF.

Article PDF first page preview

Article PDF first page preview

Supplementary data

You do not currently have access to this content.