Benefits and spillovers of greater competition in Europe: a macroeconomic assessment

Tamim Bayoumi, Douglas Laxton and Paolo Pesenti

No 182, Staff Reports from Federal Reserve Bank of New York

Abstract: We estimate the macroeconomic benefits and international spillovers of an increase in competition using a general-equilibrium simulation model with nominal rigidities and monopolistic competition in product and labor markets. We draw three conclusions after calibrating the model to the euro area against the rest of the industrial world. 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 more than half of the current gap in GDP per capita between the euro area and the United States. Second, greater competition may improve macroeconomic management by increasing the responsiveness of wages and prices to market conditions. Third, increased competition can generate positive spillovers to the rest of the world through its impact on the terms of trade.

Keywords: Competition - Europe; Economic policy; Gross domestic product; Monopolistic competition; Macroeconomics (search for similar items in EconPapers)
Date: 2004
New Economics Papers: this item is included in nep-com and nep-eec
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Related works:
Working Paper: Benefits and Spillovers of Greater Competition in Europe: A Macroeconomic Assessment (2004)
Working Paper: Benefits and spillovers of greater competition in Europe: a macroeconomic assessment (2004)
Working Paper: Benefits and spillovers of greater competition in Europe: a macroeconomic assessment (2004)
Working Paper: Benefits and Spillovers of Greater Competition in Europe: A Macroeconomic Assesment (2004)
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