A Two-Sector Small Open Economy Model with Monopolistically Competitive Non Traded Markets

Romain Restout ()

Economie Internationale, 2008, issue 115, 165-192

Abstract: This paper explores the consequences of introducing a monopolistic competition in a two-sector open economy model. The effects of fiscal and technological shocks are simulated. First, unlike the perfectly competitive framework, the present model is consistent with the saving-investment correlations found in the data. Second, the degree of competition observed in non traded markets matters in determining the current account and investment responses to fiscal and technological shocks. Third, simulations show that the perfectly competitive two-sector model is too restrictive when investigating the relationship between the relative price of non traded goods and real factors like fi scal policies and productivity disturbances.

Keywords: Monopolistic competition; inflation; fiscal policy; productivity (search for similar items in EconPapers)
JEL-codes: E20 E62 F31 F41 (search for similar items in EconPapers)
Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:cii:cepiei:2008-3tf

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