Benefits and Spillovers of Greater Competition in Europe: A Macroeconomic Assessment

52 Pages Posted: 12 Aug 2004

See all articles by Tamim Bayoumi

Tamim Bayoumi

International Monetary Fund (IMF); Centre for Economic Policy Research (CEPR)

Douglas Laxton

International Monetary Fund (IMF) - Research Department

Paolo A. Pesenti

Federal Reserve Bank of New York; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: July 2004

Abstract

Using a general-equilibrium simulation model featuring nominal rigidities and monopolistic competition in product and labor markets, this Paper estimates the macroeconomic benefits and international spillovers of an increase in competition. After calibrating the model to the euro area vs. the rest of the industrial world, the Paper draws three conclusions. 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 over half of the current gap in GDP per capita between the euro area and the US. Second, it may improve macroeconomic management by increasing the responsiveness of wages and prices to market conditions. Third, greater competition can generate positive spillovers to the rest of the world through its impact on the terms of trade.

Keywords: Competition, mark-ups, monetary policy, Taylor rule

JEL Classification: C51, E31, E52

Suggested Citation

Bayoumi, Tamim and Laxton, Douglas and Pesenti, Paolo A., Benefits and Spillovers of Greater Competition in Europe: A Macroeconomic Assessment (July 2004). CEPR Discussion Paper No. 4481. Available at SSRN: https://ssrn.com/abstract=575461

Tamim Bayoumi (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-6333 (Phone)
202-623-4795 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Douglas Laxton

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Paolo A. Pesenti

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-5493 (Phone)
212-720-6831 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
15
Abstract Views
970
PlumX Metrics