Price rigidity, the mark-up, and the dynamics of the current account
AbstractThe degree of competition affects the current account response to nominal shocks. The mechanism hinges on the relationship between the mark-up and the degree of real rigidity of prices. In a model with intermediate goods, the degree of real rigidity increases in the mark-up. A weaker response of prices to nominal shocks strengthens the "expenditure switching" effect of the devaluation to the benefit of the current account. We analyse the relationship between the mark-up and the real rigidity in a simple closed economy model and show numerically how the mark-up can affect the response of the current account to monetary shocks in an open economy.
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Bibliographic InfoArticle provided by Canadian Economics Association in its journal Canadian Journal of Economics.
Volume (Year): 35 (2002)
Issue (Month): 3 (August)
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Postal: Canadian Economics Association Prof. Steven Ambler, Secretary-Treasurer c/o Olivier Lebert, CEA/CJE/CPP Office C.P. 35006, 1221 Fleury Est Montréal, Québec, Canada H2C 3K4
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Other versions of this item:
- Lombardo, Giovanni, 2002. "Price rigidity, the mark-up and the dynamics of the current account," Discussion Paper Series 1: Economic Studies 2002,14, Deutsche Bundesbank, Research Centre.
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
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- Giovanni Lombardo, . "Sticky Prices, Markup and the Business Cycle: Some Evidence," Discussion Papers 01/06, Department of Economics, University of York.
- Michael Bleaney & Mo Tian, . "Exchange Rates and Trade Balance Adjustment:A Multi-Country Empirical Analysis," Discussion Papers 12/10, University of Nottingham, CREDIT.
- Lombardo, Giovanni, 2004.
"Inflation targeting rules and welfare in an asymmetric currency area,"
Discussion Paper Series 1: Economic Studies
2004,04, Deutsche Bundesbank, Research Centre.
- Lombardo, Giovanni, 2006. "Inflation targeting rules and welfare in an asymmetric currency area," Journal of International Economics, Elsevier, vol. 68(2), pages 424-442, March.
- Massimo Giuliodori, 2004. "Nominal shocks and the current account: A structural VAR analysis of 14 OECD countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 140(4), pages 569-591, December.
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