Bergin, P. R. and Corsetti, G.
Beyond Competitive Devaluations: The Monetary Dimensions of Comparative Advantage
American Economic Journal: Macroeconomics
Vol. 12 no. 4 pp. 246-286 (2020)
Abstract: Motivated by the long-standing debate on competitive devaluation, we propose a new perspective on how monetary and exchange rate policies can contribute to a country's international competitiveness. We refocus the analysis on the implications of monetary stabilization for a country's comparative advantage. We develop a two-country New Keynesian model with two tradable sectors in each country: one perfectly competitive, the other producing differentiated goods under monopolistic competition subject to sunk entry costs and nominal rigidities and hence more sensitive to macroeconomic uncertainty. Monetary policy can disproportionately foster competitiveness of differentiated goods firms, ultimately affecting the composition of domestic output and exports.
JEL Codes: E12, E23, E52, F11, F31
Author links: Giancarlo Corsetti
Publisher's Link: https://doi.org/10.1257/mac.20160094 
Open Data link: https://www.aeaweb.org/articles/attachments?retrieve=5KH5uosO1o4OjHy1_-ETZ2jgK-qTHKST