The Hitchhiker's Guide to Markup Estimation: Assessing Estimates From Financial Data

Abstract

Macroeconomic outcomes depend on the distribution of markups across firms and over time, making firm-level markup estimates key for macroeconomic analysis. Methods to obtain these estimates require data on the prices that firms charge. Firm-level data with wide coverage, however, primarily come from financial statements, which lack information on prices. We use an analytical framework to show that trends in markups over time or the dispersion of markups across firms can still be well-measured with such data. Measuring the average level of the markup does require pricing data, and we propose a consistent estimator for such settings. We validate the analytical results using simulations of a quantitative macroeconomic model and offer supporting evidence from firm-level administrative production and pricing data. Our analysis supports the use of financial data to measure trends in aggregate markups.