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Estimating the Baumol-Bowen and Balassa-Samuelson Effects in the Polish Economy - a Disaggregated Approach

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  • Karolina Konopczak

    ()
    (Polish Ministry of Finance and Institute for Market, Consumption and Business Cycles Research)

  • Andrzej Torój

    ()
    (Polish Ministry of Finance)

Abstract

This paper estimates the magnitude of the Baumol-Bowen and Balassa-Samuleson effects in the Polish economy. The purpose of the analysis is to establish to what extent the differential price dynamics in Poland and in the euro area and the real appreciation of PLN against EUR are explained by the differential in respective productivity dynamics. The historical contribution of the Baumol-Bowen effect to Polish inflation rate is estimated at 0:9 - 1:0 percentage points in the short run. According to estimation results, the Balassa-Samuelson effect contributed around 0:9 to 1:0 percentage point per annum to the rate of relative price growth between Poland and the euro area and 1:0 to 1:2 p.p. to real exchange rate appreciation. The long-run effects are of an approximately twice larger magnitude. Sub-sample calculations and productivity trends over the last decade suggest that this impact should be declining. However, its size is still non-negligible for policymakers in the context of euro adoption in Poland.

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Bibliographic Info

Article provided by CEJEME in its journal Central European Journal of Economic Modelling and Econometrics.

Volume (Year): 2 (2010)
Issue (Month): 2 (March)
Pages: 117-150

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Handle: RePEc:psc:journl:v:2:y:2010:i:4:p:117-150

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Web page: http://cejeme.org/

Related research

Keywords: Balassa-Samuelson hypothesis; monetary integration; real appreciation; panel cointegration;

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  1. 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.
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Cited by:
  1. Dong He & Wenlang Zhang & Gaofeng Han & Tommy Wu, 2012. "Productivity Growth of the Non-Tradable Sectors in China," Working Papers 082012, Hong Kong Institute for Monetary Research.

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