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

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Discussion Paper Series 1 ; No. 2002,14

Classification and Topics

• Classification: Wirtschaft ; Business Fluctuations; Cycles ; Current Account Adjustment; Short-term Capital Movements
• Subject: Current account ; mark-up ; monopolistic competition ; persistence ; real rigidity ; nominal rigidity ; Zahlungsbilanzmechanismus ; Schock ; Mehr-Sektoren-Modell ; Mark-up Pricing ; Preisrigidität ; Monopolistischer Wettbewerb ; Zwei-Länder-Modell ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Lombardo, Giovanni
• Event: Veröffentlichung
• (who): Deutsche Bundesbank
• (where): Frankfurt a. M.
• (when): 2002

Further information

• Handle: http://hdl.handle.net/10419/19571
• Last update: 10.03.2025, 11:44 AM CET