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Events of DIW Berlin

10. April 2019

DIW Seminar on Macroeconomics and Financial Markets Reforms and the Real Exchange Rate: The Role of Pricing-to-Market

The paper investigates how endogenous markups affect the extent to which policy reforms can inuence international competitiveness. In a two-country model where trade costs allow for international market segmentation, we show that endogenous pricing-to-market behavior offirms acts as an important transmission channel of the policies. By strengthening the degree of competition between rms, product market deregulation at home leads to a reduction in domestic markups, which generally leads to an improvement in the international competitiveness of the Home country. Conversely, the power of competitive tax policy to depreciate the real exchange rate is dampened, as domestic firms take the opportunity of the labor tax cut to increase their markups. The variability of markups also affects the normative implications of the reforms. This indicates the importance of taking into account endogenous pricing-to-market behavior when intending to correctly evaluate the overall effects of the reforms.

Mehr Informationen
  • Celine Poilly, University of Aix-Marseille, France

  • Zeit
    Joan Robinson Room DIW Berlin Raum 3.3.002a Mohrenstraße 58 10117 Berlin
    im DIW Berlin
    Tel.: +49 30 89789 486