Bank of Lithuania
April 05 10:30 - 11:45

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.

Last update: 03-04-2024