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The Balassa-Samuelson Hypothesis in Estonia: Oil Shale, Tradable Goods, Regulated Prices and Other Culprits

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  • Balázs Egert

Abstract

This paper analyses the Balassa-Samuelson (B-S) framework for the case of Estonia using a unique dataset that consists of a 15-sectoral breakdown of GDP and a five-digit level CPI disaggregation with 260 items over the period from 1993 to 2002. Unlike the existing literature, the paper focuses on the following four aspects of the phenomenon: (a) data disaggregation, (b) definition of goods tradability, (c) price regulatedness in services and (d) possible heterogeneity across transition countries. It turns out that the first three aspects do matter and, in addition to this, Estonia appears to bear very specific characteristics when compared with other transition countries. A battery of cointegration techniques (DOLS, ARDL, Johansen) shows that productivity is strongly related to relative prices only when regulated prices are controlled for appropriately in the consumer price index and when country-specific classification is applied to the open and closed sectors. The B-S effect contributed to CPI by 1 to 1.5 per cent at the outset of the period and by 0.4 to 0.6 per cent in 2002, whereas its potential long-run impact is estimated to be 1 to 1.2 per cent. Although real appreciation due to the B-S effect seems higher in the early 1990s, it explains that better real appreciation occurred in recent years. Copyright Blackwell Publishing Ltd 2005.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal The World Economy.

Volume (Year): 28 (2005)
Issue (Month): 2 (02)
Pages: 259-286

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Handle: RePEc:bla:worlde:v:28:y:2005:i:2:p:259-286

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Cited by:
  1. Václav Žďárek & Jaromír Šindel, 2007. "Real and Nominal Convergence and the New EU Member States - Actual State and Implications," Prague Economic Papers, University of Economics, Prague, University of Economics, Prague, vol. 2007(3), pages 195-219.
  2. Jaan Masso & Karsten Staehr, 2005. "Inflation Dynamics And Nominal Adjustment In The Baltic States," University of Tartu - Faculty of Economics and Business Administration Working Paper Series, Faculty of Economics and Business Administration, University of Tartu (Estonia) 35, Faculty of Economics and Business Administration, University of Tartu (Estonia).
  3. Lein-Rupprecht, Sarah M. & León-Ledesma, Miguel A. & Nerlich, Carolin, 2007. "How is real convergence driving nominal convergence in the new EU Member States?," Working Paper Series, European Central Bank 0827, European Central Bank.
  4. Balázs Égert & László Halpern & Ronald MacDonald, 2005. "Equilibrium Exchange Rates in T ransition Economies: T aking Stock of the Issues," Working Papers, Oesterreichische Nationalbank (Austrian Central Bank) 106, Oesterreichische Nationalbank (Austrian Central Bank).
  5. Egert, Balazs & Lommatzsch, Kirsten & Lahreche-Revil, Amina, 2006. "Real exchange rates in small open OECD and transition economies: Comparing apples with oranges?," Journal of Banking & Finance, Elsevier, Elsevier, vol. 30(12), pages 3393-3406, December.
  6. Balázs Égert & Kirsten Lommatzsch, 2004. "Equilibrium Exchange Rates in the Transition: The Tradable Price-Based Real Appreciation and Estimation Uncertainty," William Davidson Institute Working Papers Series 2004-676, William Davidson Institute at the University of Michigan.
  7. Siregar, Reza, 2011. "The Concepts of Equilibrium Exchange Rate: A Survey of Literature," MPRA Paper 28987, University Library of Munich, Germany.
  8. Jesus Crespo Cuaresma & Jarko Fidrmuc & Maria Antoinette Silgoner, 2004. "Exchange Rate Developments and Fundamentals in Four EU Accession and Candidate Countries: Bulgaria, Croatia, Romania and Turkey," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 119-137.
  9. Christian Just, 2004. "The International Financial Architecture: Official Proposals on Crisis Resolution," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 73–89.
  10. Balázs Égert, 2004. "Equilibrium Exchange Rates in Southeastern Europe, Russia, Ukraine and Turkey: Healthy or (Dutch) Diseased?," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 138-181.
  11. Égert, Balázs, 2004. "Assessing equilibrium exchange rates in CEE acceding countries: Can we have DEER with BEER without FEER? A critical survey of the literature," BOFIT Discussion Papers, Bank of Finland, Institute for Economies in Transition 1/2004, Bank of Finland, Institute for Economies in Transition.

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