Is there Scope for Inflation Differentials in EMU? An Empirical Evaluation of the Balassa-Samuelson Model in EMU Countries
AbstractThe Balassa-Samuelson (BS) model is evaluated in eight of the eleven EMU countries. This model suggests that productivity differentials between traded and non-traded goods sectors generate sectoral inflation differentials (dual inflation). Furthermore, differentials in the degree of dual inflation induce inflation differentials between countries. The standard BS model implies a cointegration relationship between ralative prices and sectoral productivities. While the link generally seems to exist, the magnitudes of the parameter estimates are not in accordance with the theoretical model in most countries. Since the presumed uniformity of sectoral wages is rejected in most cases, relative wages are allowed to enter the estimation. This extended BS model is endorsed by the data in every country.
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Bibliographic InfoPaper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 9823.
Length: 58 pages
Date of creation: 1998
Date of revision:
INFLATION ; MONETARY UNION ; EUROPE;
Other versions of this item:
- Alberola, Enrique & Tyrväinen, Timo, 1998. "Is There Scope for Inflation Differentials in EMU? An Empirical Evaluation of the Balassa-Samuelson Model in EMU Countries," Research Discussion Papers 15/1998, Bank of Finland.
- F15 - International Economics - - Trade - - - Economic Integration
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
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