Beschreibung:
Competition can have opposite impacts on the inflation-output trade-off by increasing the real rigidity but lowering the nominal rigidity. We build a New Keynesian model with Kimball aggregator and Calvo staggered pricing. We use the Bayesian method to estimate our model with regional data from China. Our estimated DSGE results replicate the regional impulsive responses from the SVAR estimation: the initial inflation-output trade-off is larger in the region with a high degree of competition. Therefore, the effect of the competition is dominated by the decrease in nominal rigidity. Counterfactual experiments suggest that the magnitude of impact mainly reflects the effect from nominal rigidity, while the effect from real rigidity is small. Our results highlight the key role of price adjustment frequency in response to competition