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Globalization, markups and the natural rate of interest

Author

Listed:
  • Jean-Marc Natal
  • Dr. Nicolas Stoffels

Abstract

In this paper, we investigate how, in a stylised theoretical framework, an increase in the degree of globalization - modelled as a deline in trade costs - affects the real natural rate of interest by impacting firms markups. Outlining a two- country dynamic general equilibrium model with endogenous elasticity of substitution between goods, we suggest two main propositions: 1) Globalization - via the impplied variation in markups - has a potentially significant impact on the natural rate of interest. 2) Simple, plausible markup dynamics may have contributed to explain the recent "conundrum" of world interest rates.

Suggested Citation

  • Jean-Marc Natal & Dr. Nicolas Stoffels, 2007. "Globalization, markups and the natural rate of interest," Working Papers 2007-14, Swiss National Bank.
    • Handle: RePEc:snb:snbwpa:2007-14
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    File URL: https://www.snb.ch/en/publications/research/working-papers/2007/working_paper_2007_14
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    Cited by:

    1. Jean-Marc Natal & Nicolas Stoffels, 2019. "Globalization, Market Power, and the Natural Interest Rate," IMF Working Papers 2019/095, International Monetary Fund.
    2. International Monetary Fund, 2016. "Germany: 2016 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Germany," IMF Staff Country Reports 2016/202, International Monetary Fund.
    3. Daniel Rees & Guofeng Sun, 2021. "The natural interest rate in China," BIS Working Papers 949, Bank for International Settlements.

    More about this item

    Keywords

    globalization; natural interest rate; trade costs;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • F15 - International Economics - - Trade - - - Economic Integration
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F49 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Other

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