Markups and Monetary Policy: Evidence from Denmark


This paper studies the transmission of monetary policy to price markups in a large representative sample of Danish manufacturing firms. We combine administrative data on firm characteristics with producer price index microdata, and obtain estimates that are robust to the recent threats to identification advanced in the literature. We document three facts: (a) the absence of a rising trend in markups; (b) a sizable response of markups in the short run, driven by the fall in marginal costs; (c) a symmetric effect for expansionary and contractionary shocks, largely homogeneous across firms with different characteristics. These results validate the standard New Keynesian model of transmission of monetary policy, and suggest a smaller role for heterogeneous effects across the firm distribution.