The price effects of enhancing services sector competition in a large open economy

This paper studies the price e?ects of shocks to the degree of competition. It is motivated by initiatives to enhance competition in services in the European Union. The paper shows that a higher degree of competition in the nontradable goods sector may have adverse implications for international price competitiveness. It highlights four channels through which enhanced competition in the non-tradable goods sector a?ects the general price level in a large, open economy (lower monopoly rents, lower import prices, higher demand for real money balances, higher wages) and assesses their relative importance algebraically. The conclusions are supportive of the Single Market and point at possible implications for monetary policy.

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