Globalization, markups and the natural rate of interest

Jean-Marc Natal and Nicolas Stoffels

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: globalization; natural interest rate; trade costs (search for similar items in EconPapers)
JEL-codes: E43 F15 F41 F49 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2007
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:snb:snbwpa:2007-14

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