Code and Data for: Beyond Competitive Devaluations

We propose a new perspective on how monetary and exchange rate policies contribute to international competitiveness, by focusing on implications for a country’s comparative advantage. We develop a two-country New-Keynesian model allowing for sectoral differences in the production of tradables: while in one sector firms are perfectly competitive, in another sector firms produce differentiated goods under monopolistic competition and subject to nominal rigidities, hence their performance is more sensitive to macroeconomic uncertainty. We show that, by stabilizing inflation and the output gap, monetary policy can foster the competitiveness of these firms, encouraging investment and entry in the differentiated goods sector.