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Beyond the Salassa-Samuelson Effect in some New Member States of the European Union

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  • José García-Solanes
  • Francisco I. Sancho-Portero
  • Fernando Torrejón-Flores

Abstract

This paper analyses the Balassa and Samuelson hypothesis in two groups of European countries: six New Member States (NMS) and six advanced EU-15 economies. It is found that the second stage of the hypothesis, which relates relative sector prices with the real exchange rate, does not hold anywhere. In the NMS the main reasons are increased demand for domestic tradables stemming from positive differentials in economic growth, probably coupled with quality improvements in domestic tradable goods. In the EU-15, the explanatory factor is segmentation between national markets of tradables, caused by transportation costs, non-tariff barriers and imperfect competition between firms.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1886.

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Date of creation: 2007
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Handle: RePEc:ces:ceswps:_1886

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Keywords: Balassa-Samuelson effect; panel cointegration; economic transition; market segmentation; quality bias;

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Cited by:
  1. Jarko Fidrmuc & Roman Horváth, 2007. "Volatility of Exchange Rates in Selected New EU Members: Evidence from Daily Data," CESifo Working Paper Series 2107, CESifo Group Munich.
  2. Mirjana Miletic, 2012. "Estimating the Impact of the Balassa-Samuelson Effect in Central and Eastern European Countries: A Revised Analysis of Panel Data Cointegration Tests," Working papers, National Bank of Serbia 22, National Bank of Serbia.
  3. García Solanes, José & Torrejón-Flores, Fernando, 2008. "The Balassa-Samuelson Hypothesis in Developed Countries and Emerging Market Economies: Different Outcomes Explained," Economics Discussion Papers 2008-14, Kiel Institute for the World Economy.

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