Monetary aspects of business cycles in Norway: an exploratory study based on historical data

Abstract

Hall's (1988) approach to study price-cost margins is adapted to simultaneously estimate price-cost margins and scale economies from a panel of plant level data. The paper shows how this methodology provides a very flexible framework with only a few, economically interesting parameters to be estimated. The econometric model is tested and estimated on different panels of plants, covering most manufacturing industries in Norway 1980-90. The GMM-estimates suggest significant, but quite small, markups in all industries. No industry exhibits increasing returns to scale; the average firm (in all industries) seems to face constant or moderately decreasing returns to scale. Estimates suggest that there is more variation in the price-cost margins and scale coefficients within the fairly narrow industry groups investigated, as compared to between the industry groups.