Discussion paper

DP18723 Markups and the Asymmetric Pass-Through of Cost Push Shocks

This paper studies how prices and markups respond to cost push shocks, taking the example of global oil supply shocks. Using sector-level data for the US, we first document a weaker pass-through of global oil shocks to PPI inflation in sectors where firms charge higher markups. However, high markups mainly reduce the pass-through of dis-inflationary oil shocks, while they barely affect that of inflationary oil shocks. Second, using firm-level data, we show that following a dis-inflationary oil shock, high-markup firms are more likely to raise their markup. In addition, they are also more likely to increase their revenues, and hence their profits. Conversely, we find no difference in the response of high- and low-markup firms to inflationary oil shocks. Taken together, these results suggest that high-markup firms draw significant benefits from dis-inflationary oil shocks, as they are able to raise their markups and expand their revenues. They also suggest that high markups provide little cushion against price pressures stemming from inflationary oil shocks.


Kharroubi, E, R Spigt, D Igan, K Takahashi and E Zakrajsek (2023), ‘DP18723 Markups and the Asymmetric Pass-Through of Cost Push Shocks‘, CEPR Discussion Paper No. 18723. CEPR Press, Paris & London. https://cepr.org/publications/dp18723