{
  "title": "Market Power and Monetary Policy Transmission",
  "publication": "IMF Working Papers, July 9, 2021",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2021/07/09/market-power-and-monetary-policy-transmission-461332",
  "canonical": "https://www.imf.org/en/publications/wp/issues/2021/07/09/market-power-and-monetary-policy-transmission-461332",
  "overlayPath": "/en/publications/wp/issues/2021/07/09/market-power-and-monetary-policy-transmission-461332/index.md",
  "summary": "We show that firms’ market power dampens the response of their output to monetary policy shocks, using firm-level data for the United States and a large cross-country firm-level dataset for 14 advanced economies.",
  "sections": [
    {
      "heading": "Summary and main findings",
      "content": "- Firms’ market power dampens the response of their output to monetary policy shocks.\n- The estimated impact of a firm’s markup on its response to a monetary policy shock is large enough to materially affect monetary policy transmission.\n- There is evidence that the role of markup in monetary policy transmission is greater for firms whose characteristics — notably size and age — are likely to be associated with greater financial constraints.\n- Findings are rationalized through a simple partial equilibrium model in which borrowing constraints amplify disproportionately low-markup firms’ responses to changes in interest rates."
    },
    {
      "heading": "Channels, mechanisms, and analysis",
      "content": "- Market power (measured via markups) operates as a distinct channel that weakens firms’ output responses to monetary policy shocks.\n- Interaction with financial constraints: the markup channel is larger for firms with characteristics associated with greater financial constraints (notably smaller and younger firms).\n- Theoretical underpinning: a partial equilibrium model with borrowing constraints explains why low-markup firms’ responses to interest rate changes are amplified."
    },
    {
      "heading": "Empirical scope and data",
      "content": "- Firm-level evidence for the United States.\n- A large cross-country firm-level dataset for 14 advanced economies.\n- Results reported as substantive and broadly consistent across the U.S. and the cross-country sample.\n\n---\n\n Content in this bundle\n\n- Working Paper\n  - Working Paper (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Working Paper (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2021/07/09/market-power-and-monetary-policy-transmission-461332"
    }
  ],
  "bullets": [
    "[Markdown version](/en/publications/wp/issues/2021/07/09/market-power-and-monetary-policy-transmission-461332/index.md)",
    "[Structured JSON version](/en/publications/wp/issues/2021/07/09/market-power-and-monetary-policy-transmission-461332/index.json)",
    "[Bundle manifest](/en/publications/wp/issues/2021/07/09/market-power-and-monetary-policy-transmission-461332/bundle-manifest.json)",
    "Authors: Romain A Duval, Davide Furceri, Raphael Lee, Marina Mendes Tavares",
    "Published: July 9, 2021",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781513588001.001",
    "Firms’ market power dampens the response of their output to monetary policy shocks.",
    "The estimated impact of a firm’s markup on its response to a monetary policy shock is large enough to materially affect monetary policy transmission.",
    "There is evidence that the role of markup in monetary policy transmission is greater for firms whose characteristics — notably size and age — are likely to be associated with greater financial constraints.",
    "Findings are rationalized through a simple partial equilibrium model in which borrowing constraints amplify disproportionately low-markup firms’ responses to changes in interest rates.",
    "Market power (measured via markups) operates as a distinct channel that weakens firms’ output responses to monetary policy shocks.",
    "Interaction with financial constraints: the markup channel is larger for firms with characteristics associated with greater financial constraints (notably smaller and younger firms).",
    "Theoretical underpinning: a partial equilibrium model with borrowing constraints explains why low-markup firms’ responses to interest rate changes are amplified.",
    "Firm-level evidence for the United States.",
    "A large cross-country firm-level dataset for 14 advanced economies.",
    "Results reported as substantive and broadly consistent across the U.S. and the cross-country sample.",
    "**Working Paper**"
  ],
  "related": [
    {
      "title": "Working Paper",
      "role": "paper",
      "sourceUrl": "https://www.imf.org/-/media/files/publications/wp/2021/english/wpiea2021184-print-pdf.pdf",
      "summary": {
        "path": "/-/media/files/publications/wp/2021/english/wpiea2021184-print-pdf.pdf.md",
        "mime": "text/markdown"
      },
      "binary": {
        "path": "/-/media/files/publications/wp/2021/english/wpiea2021184-print-pdf.pdf",
        "mime": "application/pdf"
      }
    }
  ],
  "alternates": {
    "markdown": "/en/publications/wp/issues/2021/07/09/market-power-and-monetary-policy-transmission-461332/index.md",
    "json": "/en/publications/wp/issues/2021/07/09/market-power-and-monetary-policy-transmission-461332/index.json",
    "bundleManifest": "/en/publications/wp/issues/2021/07/09/market-power-and-monetary-policy-transmission-461332/bundle-manifest.json"
  },
  "generatedAtUtc": "2026-09-16T19:51:37.982Z"
}