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Some thoughts on nominal convergence, its drivers and determinants for the new eu member states preparing the euro adoption

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  • Václav Žďárek
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    Abstract

    The article analyses the process of nominal convergence of the new EU member states (NMS) with particular attention paid to some applied and theoretical aspects, which may have impact on the process of the euro adoption. Chapter two addresses selected theoretical and methodological issues connected with the International Comparison Project (ICP). It discusses determinants and influences affecting price level convergence and some issues that have set off new trends, such as the globalization or process of the on-going European integration. This chapter also presents a brief summary of the main trends of price convergence observed by focusing on changes of comparative price levels (CPL) for various disaggregated items of GDP. It also deals with potential issues and problems arising in this context. Chapter three is aimed at an empirical verification of price convergence and at a search for main driving factors using data for the NMS and the old EU member states over 11 years (1995-2006). There are some differences in results depending on the applied econometric method. The most important determinants of price level are GDP and population, the openness and public finance's indicators are not significant. The last section summarises the main findings.

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    Bibliographic Info

    Article provided by University of Economics, Prague in its journal Prague Economic Papers.

    Volume (Year): 2008 (2008)
    Issue (Month): 4 ()
    Pages: 291-318

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    Handle: RePEc:prg:jnlpep:v:2008:y:2008:i:4:id:334:p:291-318

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    Related research

    Keywords: relative price level; nominal and real convergence; new EU members; law of one price; international comparisons; globalization;

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    1. R Blundell & Steven Bond, . "Initial conditions and moment restrictions in dynamic panel data model," Economics Papers W14&104., Economics Group, Nuffield College, University of Oxford.
    2. Alan M. Taylor & Mark P. Taylor, 2004. "The Purchasing Power Parity Debate," Journal of Economic Perspectives, American Economic Association, vol. 18(4), pages 135-158, Fall.
    3. Paul Grauwe & Gunther Schnabl, 2005. "Nominal Versus Real Convergence - EMU Entry Scenarios for the New Member States," Kyklos, Wiley Blackwell, vol. 58(4), pages 537-555, November.
    4. Lutz, Matthias, 2003. "Price Convergence under EMU? First Estimates," Royal Economic Society Annual Conference 2003 143, Royal Economic Society.
    5. Bergstrand, Jeffrey H, 1991. "Structural Determinants of Real Exchange Rates and National Price Levels: Some Empirical Evidence," American Economic Review, American Economic Association, vol. 81(1), pages 325-34, March.
    6. Dubravko Mihaljek & Marc Klau, 2003. "The Balassa-Samuelson effect in central Europe: a disaggregated analysis," BIS Working Papers 143, Bank for International Settlements.
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