Working Paper: CEPR ID: DP486
Authors: George Alogoskoufis; Chris Martin; Nikitas Pittls
Abstract: This paper investigates whether the structure of product markets in the industrial economies conforms to the assumptions of the two main benchmark models of international macroeconomics, namely the one-sector imperfect-substitutes model, and the two-sector model with non-traded goods. Our proposed test rests on the estimation of price equations and also allows the estimation of the degree of price sluggishness. Our findings, for 20 OECD economies, suggest that the one sector model is rejected in favour of a generalized model with two types of internationally traded goods. They also suggest significant sluggishness in the adjustment of prices.
Keywords: price setting; traded and nontraded goods; error-correction models
JEL Codes: 431211
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| product market structure (D49) | model specifications (C52) |
| model specifications (C52) | observed price behaviors (D40) |
| degree of price sluggishness (E30) | effectiveness of monetary and exchange rate policies (E52) |
| foreign prices and domestic marginal costs (F16) | producer prices (P22) |
| relative price between manufactures and nontraded goods (F16) | observed price behaviors (D40) |