A two-sector small open economy model with monopolistically competitive nontraded markets. Economie internationale 115

This paper explores the consequences of introducing a monopolistic competition in a two-sector open economy model. The effects of fiscal and technological shocks are simulated. First, unlike the perfectly competitive framework, the present model is consistent with the saving-investment correlations found in the data. Second, the markets degree of compe-tition matters in determining the current account and investment responses to fiscal and technological shocks. Third, simulations show that the perfectly competitive two-sector model is too restrictive to investigate the relationship between the relative price of non traded goods and real factors like fiscal policies and productivity disturbances