Globalization, markups and the natural rate of interest

Natal, Jean-Marc and Nicolas Stoffels ()
Additional contact information
Natal, Jean-Marc: Swiss National Bank, Postal: Boersenstrasse 15, P.O. Box, CH-8022 Zurich, http://www.snb.ch
Nicolas Stoffels: Swiss National Bank, Postal: Boersenstrasse 15, P.O. Box, CH-8022 Zurich, http://www.snb.ch

No 2007-14, Working Papers from Swiss National Bank

Abstract: 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.

Keywords: markups; globalization; natural interest rate; trade costs (search for similar items in EconPapers)
JEL-codes: E43 F15 F41 F49 (search for similar items in EconPapers)
Date: 2007-04-30

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