Presenter: Wolfgang Lechthaler (Oesterreichische Nationalbank)
Title: Trade fragmentation and nominal rigidities
Abstract: We study the role of nominal rigidities and monetary policy for the adjustment to trade fragmentation shocks. To do so we build a dynamic three-country/blocks-model with endogenous firm entry, firm heterogeneity, and selection into export markets. Trade fragmentation is modelled as an increase in the trade costs between the West-block and the East-block. Trade fragmentation implies a decrease in GDP and an increase in inflation, so that the central bank faces a tradeoff between stabilizing both.