Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/152775
Authors: 
Bayoumi, Tamim
Laxton, Douglas
Pesenti, Paolo
Year of Publication: 
2004
Series/Report no.: 
ECB Working Paper 341
Abstract: 
Using a general-equilibrium simulation model featuring nominal rigidities and monopolistic competition in product and labor markets, this paper estimates the macroeconomic benefits and international spillovers of an increase in competition. After calibrating the model to the euro area vs. the rest of the industrial world, the paper draws three conclusions. First, greater competition produces large effects on macroeconomic performance, as measured by standard indicators. In particular, we show that differences in competition can account for over half of the current gap in GDP per capita between the euro area and the US. Second, it may improve macroeconomic management by increasing the responsiveness of wages and prices to market conditions. Third, greater competition can generate positive spillovers to the rest of the world through its impact on the terms of trade.
Subjects: 
competition
Markups
monetary policy
Taylor Rule
JEL: 
C51
E31
E52
Document Type: 
Working Paper

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