Series: Working Papers. 0503.
Author: Ángel Estrada y J. David López-Salido.
Topics: Quantitative methods | Productivity | Non-financial corporations, businesses | Economic growth and convergence | Economic situation.
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Abstract
In this paper we show that value added mark ups tend to be pro cyclical in manufacturing and counter cyclical in market services. However, at the sectoral level value added mark ups may be misinterpreted if intermediate input variations are ignored. This is particularly true in the case of the manufacturing sectors, although less so in that of market services. In fact, this is the main explanation for the (pro cyclical) behaviour of relative services manufacturing mark ups which, in turn, play an important role in their relative price dynamics of these sectors. In addition, fluctuations in demand also play a role. In the case of services, mark ups depend negatively on current output and positively on future output; hence in periods when demand is recovering (declining) mark ups widen (narrow). By contrast, in the manufacturing sectors mark ups depend positively on the current output gap and negatively on future expected demand, i.e. when demand is recovering (declining) current mark ups fall (rise).