Price Convergence to the EU: What Do the 1999 ICP Data Tell Us?
AbstractThe paper analyses the price convergence in the Czech Republic and other Central and Eastern European (CEE) countries towards the European Union (EU). Cross-country comparisons based on the International Comparison Project (ICP) 1999 are used. The authors conclude that in a benchmark convergence scenario, the equilibrium real exchange rate appreciation of the Czech koruna (CZK) should reach roughly 1.5-2.0 percent a year. They also warn, however, that there may be additional sources of real appreciation such as terms-of-trade changes or price deregulations, which may lead to a higher pace in the medium run. Studying a more detailed breakdown of commodities, the authors find that no clear distinction can be made between tradable and non-tradable goods, the 'degree of non-tradability' varying between 10 and 85 percent. The implications of this for differences in the structures of relative prices in the CEE countries compared with the EU are analysed. The paper concludes that it may take about 15 years for the Czech relative price structure to converge to the least-developed EU countries.
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Bibliographic InfoPaper provided by Czech National Bank, Research Department in its series Working Papers with number 2003/02.
Date of creation: Feb 2003
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Balassa-Samuelson model; inflation; relative prices.;
Find related papers by JEL classification:
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- F15 - International Economics - - Trade - - - Economic Integration
- P22 - Economic Systems - - Socialist Systems and Transition Economies - - - Prices
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