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Globalization, markups and the natural rate of interest


  • Jean-Marc Natal
  • Nicolas Stoffels


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 & 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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    References listed on IDEAS

    1. Gaudet, Gerard & Lassere, Pierre & Long, Ngo Van, 1995. "Optimal Resource Royalties with Unknown and Temporally Independent Extraction Cost Structures," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(3), pages 715-749, August.
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    Cited by:

    1. 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 16/202, International Monetary Fund.

    More about this item


    globalization; natural interest rate; trade costs;

    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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