Employment and hours are more cyclical than dictated by productivity and consumption. This intratemporal labor wedge can arise from product or labor market distortions. Based on employee wages, the literature has attributed the intratemporal wedge almost entirely to labor market distortions. Because wages may be smoothed versions of labor's true cyclical price, we instead examine the self-employed and intermediate inputs, respectively. For recent decades in the United States, we find price markup movements are at least as cyclical as wage markup movements. Thus, countercyclical price markups deserve a central place in business-cycle research, alongside sticky wages and matching frictions. (JEL E24, E32, E63, J31, J41)

Many business cycle models use a flat short-run Phillips curve, due to time-dependent pricing and strategic complementarities, to explain fluctuations in real output. But, in doing so, these models predict unrealistically high persistence and stability of US inflation in recent decades. We calculate “reset price inflation”—based on new prices chosen by the subsample of price changers—to dissect this discrepancy. We find that the models generate too much persistence and stability both in reset price inflation and in the way reset price inflation is converted into actual inflation. Our findings present a challenge to existing explanations for business cycles. (JEL E31, E52)