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Catching-up and inflation in transition economies: the Balassa-Samuelson effect revisited

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  • Dubravko Mihaljek
  • Marc Klau

Abstract

This paper estimates the Balassa-Samuelson effects for 11 countries in central and eastern Europe on a disaggregated set of quarterly data covering the period from the mid-1990s to the first quarter of 2008. The Balassa-Samuelson effects are clearly present and explain around 24% of inflation differentials vis-à-vis the euro area (about 1.2 percentage points on average); and around 84% of domestic relative price differentials between non-tradables and tradables; or about 16% of total domestic inflation (about 1.1 percentage points on average). The paper presents mixed evidence on whether the Balassa-Samuelson effects have declined since 2001 compared with the second half of the 1990s.

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Bibliographic Info

Paper provided by Bank for International Settlements in its series BIS Working Papers with number 270.

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Length: 26 pages
Date of creation: Dec 2008
Date of revision:
Handle: RePEc:bis:biswps:270

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Keywords: Balassa-Samuelson effect; productivity; inflation; transition; convergence; European monetary union; Maastricht criteria;

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References

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  1. Martin Cincibuch & Jiri Podpiera, 2004. "Beyond Balassa - Samuelson: Real Appreciation in Tradables in Transition Countries," Working Papers, Czech National Bank, Research Department 2004/09, Czech National Bank, Research Department.
  2. Georgi Chukalev, 2002. "The Balassa-Samuelson Effect in the Bulgarian Economy," Working paper series, Agency for Economic Analysis and Forecasting 22002en, Agency for Economic Analysis and Forecasting.
  3. Balázs Égert, & László Halpern & Ronald MacDonald, 2005. "Equilibrium Exchange Rates in Transition Economies: Taking Stock of the Issues," William Davidson Institute Working Papers Series, William Davidson Institute at the University of Michigan wp793, William Davidson Institute at the University of Michigan.
  4. Holger C. Wolf & Alberto Giovannini & Jose De Gregorio, 1994. "International Evidenceon Tradables and Nontradables Inflation," IMF Working Papers, International Monetary Fund 94/33, International Monetary Fund.
  5. Vladislav Flek & Lenka Markova & Jiri Podpiera, 2002. "Sectoral Productivity and Real Exchange Rate Appreciation: Much Ado about Nothing?," Working Papers, Czech National Bank, Research Department 2002/04, Czech National Bank, Research Department.
  6. Zsolt Darvas & György Szapáry, 2008. "Euro Area Enlargement and Euro Adoption Strategies," Working Papers, Department of Mathematical Economics and Economic Analysis, Corvinus University of Budapest 0801, Department of Mathematical Economics and Economic Analysis, Corvinus University of Budapest.
  7. Balazs Egert, 2007. "Real Convergence, Price Level Convergence and Inflation Differentials in Europe," William Davidson Institute Working Papers Series, William Davidson Institute at the University of Michigan wp895, William Davidson Institute at the University of Michigan.
  8. Nikolay Nenovsky & Kalina Dimitrova, 2002. "Dual Inflation Under the Currency Board: The Challenges of Bulgarian EU Accession," William Davidson Institute Working Papers Series, William Davidson Institute at the University of Michigan 487, William Davidson Institute at the University of Michigan.
  9. R. Golinelli & R. Orsi, 2001. "Hungary and Poland," Working Papers, Dipartimento Scienze Economiche, Universita' di Bologna 424, Dipartimento Scienze Economiche, Universita' di Bologna.
  10. Laszlo Halpern & Charles Wyplosz, 2001. "Economic Transformation and Real Exchange Rates in the 2000s: The Balassa-Samuelson Connection," ECE Discussion Papers Series, UNECE 2001_1, UNECE.
  11. Ronald MacDonald & Cezary WÛjcik, 2004. "Catching up: The role of demand, supply and regulated price effects on the real exchange rates of four accession countries," The Economics of Transition, The European Bank for Reconstruction and Development, The European Bank for Reconstruction and Development, vol. 12(1), pages 153-179, 03.
  12. Balázs Egert, 2002. "Investigating the Balassa-Samuelson hypothesis in the transition: Do we understand what we see? A panel study," The Economics of Transition, The European Bank for Reconstruction and Development, The European Bank for Reconstruction and Development, vol. 10(2), pages 273-309, July.
  13. Coricelli, Fabrizio & Jazbec, Bostjan, 2001. "Real Exchange Rate Dynamics in Transition Economies," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2869, C.E.P.R. Discussion Papers.
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Citations

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Cited by:
  1. Holger Wolf, 2012. "Eurozone entry criteria after the crisis," International Economics and Economic Policy, Springer, Springer, vol. 9(1), pages 1-6, March.
  2. Mehrotra, Aaron & Sánchez-Fung, José R., 2011. "Assessing McCallum and Taylor rules in a cross-section of emerging market economies," Journal of International Financial Markets, Institutions and Money, Elsevier, Elsevier, vol. 21(2), pages 207-228, April.
  3. Borgersen, Trond-Arne & King, Roswitha M., 2011. "Reallocation and restructuring: A generalization of the Balassa–Samuelson effect," Structural Change and Economic Dynamics, Elsevier, Elsevier, vol. 22(4), pages 287-298.
  4. Marjan Senjur, 2010. "Differential inflation, Phillips curves, and price competitiveness in a new euro-member country," Economic Change and Restructuring, Springer, Springer, vol. 43(4), pages 253-273, November.
  5. Alexopoulou, Ioana & Bunda, Irina & Ferrando, Annalisa, 2009. "Determinants of government bond spreads in new EU countries," Working Paper Series, European Central Bank 1093, European Central Bank.
  6. Daan Steenkamp, 2013. "Productivity and the New Zealand Dollar: Balassa-Samuelson tests on sectoral data," Reserve Bank of New Zealand Analytical Notes series, Reserve Bank of New Zealand AN2013/01, Reserve Bank of New Zealand.
  7. Mirjana Miletić, 2012. "Estimating the Impact of the Balassa-Samuelson Effect in Central and Eastern European Countries: A Revised Analysis of Panel Data Cointegration Tests," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 59(4), pages 475-499, September.
  8. Harashima, Taiji, 2011. "A Mechanism of Inflation Differentials and Current Account Imbalances in the Euro Area," MPRA Paper 28121, University Library of Munich, Germany.

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