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Improving Competition in the Non-Tradable Goods and Labour Markets: The Portuguese Case

Publication Year 
JEL Code 
E2 - Consumption, Saving, Production, Employment, and Investment
E60 - General
F16 - Trade and Labor Market Interactions
F41 - Open Economy Macroeconomics
This study assesses the macroeconomic impacts of increasing competition in the non-tradable goods and labour markets in Portugal. We lean on evidence that the maintenance of low competition in these markets may have contributed to the recent poor performance of the Portuguese economy. The analysis is performed using PESSOA, a dynamic general equilibrium model for a small-open economy integrated in a monetary union, featuring Blanchard-Yaari households, a multi-sectoral production structure and a number of nominal and real rigidities. We conclude that measures aimed at increasing competition in the Portuguese non-tradable goods and labour markets could induce important international competitiveness gains and be valuable instruments in promoting necessary adjustments within the monetary union frame-work. However, in the short run, real interest rates are likely to increase temporarily, driving consumption and output temporarily downwards.
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