DP486 Pricing and Product Market Structure in Open Economies: An Empirical Test

Author(s): George Alogoskoufis, Christopher Martin, Nikitas Pittis
Publication Date: December 1990
Keyword(s): Error-Correction Models, Price Setting, Traded and Non-Traded Goods
JEL(s): 211, 431
Programme Areas: International Macroeconomics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=486

This paper investigates whether the structure of product markets in the industrial economies conforms to the assumptions of the two main benchmark models of international macroeconomics, namely the one-sector imperfect-substitutes model, and the two-sector model with non-traded goods. Our proposed test rests on the estimation of price equations and also allows the estimation of the degree of price sluggishness. Our findings, for 20 OECD economies, suggest that the one sector model is rejected in favour of a generalized model with two types of internationally traded goods. They also suggest significant sluggishness in the adjustment of prices.