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

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Author Info
José García-Solanes ()
Francisco I. Sancho-Portero
Fernando Torrejón-Flores

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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 GmbH in its series CESifo Working Paper Series with number CESifo Working Paper No. 1886.

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

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

Find related papers by JEL classification:
C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Statistical Simulation Methods
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
F31 - International Economics - - International Finance - - - Foreign Exchange

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    Other versions:
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  20. Vladislav Flek & Lenka Markova & Jiri Podpiera, 2002. "Sectoral Productivity and Real Exchange Rate Appreciation: Much Ado about Nothing?," Working Papers 2002/04, Czech National Bank, Research Department. [Downloadable!]
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