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Price rigidity, the mark-up and the dynamics of the current account

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  • Lombardo, Giovanni

Abstract

This paper shows that the 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 markup. A weaker response of prices to nominal shocks strengthens the ?expenditure switching? effect of the devaluation to the benefit of the current account. We first analyse the relationship between the mark-up and the real rigidity in a simple closed economy model. We then show numerically how the mark-up can affect the response of the current account to monetary shocks. -- Der vorliegende Beitrag zeigt, dass der Grad der Wettbewerbsintensität die Reaktion der Leistungsbilanz auf nominale Schocks beeinflusst. Entscheidend hierfür ist der Zusammenhang zwischen dem Mark-up und der realen Rigidität der Preise. In einem Modell mit Zwischenprodukten nimmt die reale Rigidität mit dem Mark-up zu. Bei einer schwächeren Reaktion der Preise auf nominale Schocks führt eine Abwertung zu einer stärkeren Verschiebung der Ausgaben mit positiven Auswirkungen auf die Leistungsbilanz. Zunächst wird das Verhältnis zwischen dem Mark-up und der realen Rigidität in einem einfachen Modell einer geschlossenen Volkswirtschaft untersucht. Anschließend wird numerisch dargestellt, wie der Mark-up die Reaktion der Leistungsbilanz auf monetäre Schocks beeinflussen kann.

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Bibliographic Info

Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2002,14.

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Date of creation: 2002
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Handle: RePEc:zbw:bubdp1:4179

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Related research

Keywords: Current account; mark-up; monopolistic competition; persistence; real rigidity; nominal rigidity;

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Cited by:
  1. Michael Bleaney & Mo Tian, . "Exchange Rates and Trade Balance Adjustment:A Multi-Country Empirical Analysis," Discussion Papers 12/10, University of Nottingham, CREDIT.
  2. Massimo Giuliodori, 2004. "Nominal shocks and the current account: A structural VAR analysis of 14 OECD countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 140(4), pages 569-591, December.
  3. Lombardo, Giovanni, 2006. "Inflation targeting rules and welfare in an asymmetric currency area," Journal of International Economics, Elsevier, Elsevier, vol. 68(2), pages 424-442, March.
  4. Giovanni Lombardo, . "Sticky Prices, Markup and the Business Cycle: Some Evidence," Discussion Papers, Department of Economics, University of York 01/06, Department of Economics, University of York.

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