“Competition and Inflation in CESEE Countries : A Sectoral Analysis”

by Reiner Martin and Julia Worz

Comments by Ricardo V. Lago

Motivation and Method of the paper

• Investigate the impact of sector–specific competition on price developments in 11 countries and 20 sectors in the period 1999 -2007

• 20 Sectors : – 7 Wholesale Trade – 7 Retail Trade – 3 Consumer Services– 3 Manufacturing

• Uses as two proxies to measure competition : Rate of Return on Assets Herfindahl Index of Sales Concentration

Inflation mark-up equation

Explanatory variables – Competition proxy

Rate of Return on Assets – Macro Variables

Lagged Inflation Output Gap M3 growth

– Cost -push Oil price inflation Wage inflation other input price inflation

Conclusions

• Patterns of evolution of competition are

uniform across sectors rather the countries• Competition proxied by Rate of Return of

Assets is significant on 17 sectors of Services • Competition proxied by Rate of Return of

Assets is not significant for manufacturing

Comments • You frame it in terms of effect on competition on

sectoral inflation • I believe that what is at work , however , is the

Balassa –Samuelson effect rather than low competition by itself

• The relative price of non –tradables to tradables increases overtime , because productivity growth is faster in the manufacturing /tradeable sector

• In other words the real exchange rate appreciates • Had all the countries freely float their currencies ,

your ROA parameter would have no significance• Herfindahl index irrelevant for manufacturing

beacause it caters to the world market

From Dollarization and Euroizationto Goldization

How much gold over the ground ?