Oil uncertainty and the price-cost markup: Evidence from U.S. data

Abstract

This paper investigates the implications of uncertainty in the oil and gas sector for the dynamics of the price-cost markup at the business cycle frequency. We estimate a structural VAR model using U.S. quarterly data for the period 1982q2:2018q4, and find that an increase in oil uncertainty reduces the measured price-cost markup and economic activities. This result is consistent with the prediction of a calibrated New-Keynesian model with oil uncertainty shocks. These findings also provide insights into the relevance of the markup as a transmission channel of oil uncertainty.